PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______

Nos. 11-3301 and 11-3426

______

ZF MERITOR, LLC;

MERITOR TRANSMISSION CORPORATION,

Appellants, No. 11-3426

v.

EATON CORPORATION,

Appellant, No. 11-3301

______

On Appeal from the United States District Court

for the District of Delaware

(D.C. No. 1-06-cv-00623)

District Judge: Honorable Sue L. Robinson

______

Argued June 26, 2012

Before: FISHER and GREENBERG, Circuit Judges,

and OLIVER,* District Judge.

* The Honorable Solomon Oliver, Jr., Chief Judge of

the United States District Court for the Northern District of

Ohio, sitting by designation.

2

(Filed: September 28, 2012 )

Caeli A. Higney

Thomas G. Hungar

Theodore B. Olson (Argued)

Cynthia E. Richman

Geoffrey C. Weien

Gibson, Dunn & Crutcher

1050 Connecticut Avenue, N.W., 9th Floor

Washington, DC 20036

Erik T. Koons

William K. Lavery

Joseph A. Ostoyich

Baker Botts

1299 Pennsylvania Avenue, N.W.

The Warner

Washington, DC 20004

Donald E. Reid

Morris, Nichols, Arsht & Tunnell

1201 North Market Street

P.O. Box 1347

Wilmington, DE 19899

Counsel for Eaton Corporation

Jay N. Fastow (Argued)

Dickstein Shapiro

1633 Broadway

New York, NY 10019

3

Robert B. Holcomb

Adams Holcomb

1875 Eye Street. N.W., Suite 810

Washington, DC 20006

Christopher H. Wood

1489 Steele Street, Suite 111

Denver, CO 80206

Counsel for ZF Meritor, LLC and

Meritor Transmission Corp.

Michael S. Tarringer

Cafferty Faucher

1717 Arch Street, Suite 3610

Philadelphia, PA 19103

Counsel for American Antitrust

Institute

______

OPINION OF THE COURT

______

FISHER, Circuit Judge.

This case arises from an antitrust action brought by ZF

Meritor, LLC (―ZF Meritor‖) and Meritor Transmission

Corporation (―Meritor‖) (collectively, ―Plaintiffs‖) against

Eaton Corporation (―Eaton‖) for allegedly anticompetitive

practices in the heavy-duty truck transmissions market. The

practices at issue are embodied in long-term agreements

4

between Eaton, the leading supplier of heavy-duty truck

transmissions in North America, and every direct purchaser of

such transmissions. Following a four-week trial, a jury found

that Eaton‘s conduct violated Section 1 and Section 2 of the

Sherman Act, and Section 3 of the Clayton Act. Eaton filed a

renewed motion for judgment as a matter of law, arguing that

its conduct was per se lawful because it priced its products

above-cost. The District Court disagreed, reasoning that

notwithstanding Eaton‘s above-cost prices, there was

sufficient evidence in the record to establish that Eaton

engaged in anticompetitive conduct—specifically that Eaton

entered into long-term de facto exclusive dealing

arrangements—which foreclosed a substantial share of the

market and, as a result, harmed competition. We agree with

the District Court and will affirm the District Court‘s denial

of Eaton‘s renewed motion for judgment as a matter of law.

We are also called upon to address several other

issues. Although the jury returned a verdict in favor of

Plaintiffs on the issue of liability, prior to trial, the District

Court granted Eaton‘s motion to exclude the damages

testimony of Plaintiffs‘ expert. The District Court also denied

Plaintiffs‘ request for permission to amend the expert report

to include alternate damages calculations. Consequently, the

issue of damages was never tried and no damages were

awarded. Plaintiffs cross-appeal from the District Court‘s

order granting Eaton‘s motion to exclude and the District

Court‘s subsequent denial of Plaintiffs‘ motion for

clarification. For the reasons set forth below, we will affirm

the District Court‘s orders to the extent that they excluded

Plaintiffs‘ expert‘s testimony based on the damages

5

calculations in his initial expert report, but reverse to the

extent that the District Court denied Plaintiffs‘ request to

amend the report to submit alternate damages calculations.

Finally, although the District Court awarded no damages, it

did enter injunctive relief against Eaton. On appeal, Eaton

argues that Plaintiffs lack standing to seek injunctive relief

because they are no longer in the heavy-duty truck

transmissions market, and have expressed no concrete desire

to re-enter the market. We agree and will vacate the District

Court‘s order issuing injunctive relief.

I. BACKGROUND

A. Factual Background

1. Market Background

The parties agree that the relevant market in this case

is heavy-duty ―Class 8‖ truck transmissions (―HD

transmissions‖) in North America. Heavy-duty trucks include

18-wheeler ―linehaul‖ trucks, which are used to travel long

distances on highways, and ―performance‖ vehicles, such as

cement mixers, garbage trucks, and dump trucks. There are

three types of HD transmissions: three-pedal manual, which

uses a clutch to change gears; two-pedal automatic; and two-

or-three-pedal automated mechanical, which engages the

gears mechanically through electronic controls. Linehaul and

performance transmissions, which comprise over 90% of the

6

market, typically use manual or automated mechanical

transmissions.1

There are only four direct purchasers of HD

transmissions in North America: Freightliner, LLC

(―Freightliner‖), International Truck and Engine Corporation

(―International‖), PACCAR, Inc. (―PACCAR‖), and Volvo

Group (―Volvo‖). These companies are referred to as the

Original Equipment Manufacturers (―OEMs‖). The ultimate

consumers of HD transmissions, truck buyers, purchase

trucks from the OEMs. Truck buyers have the ability to

select many of the components used in their trucks, including

the transmissions, from OEM catalogues called ―data books.‖

Data books list the alternative component choices, and

include a price for each option relative to the ―standard‖ or

―preferred‖ offerings. The ―standard‖ offering is the

component that is provided to the customer unless the

customer expressly designates another supplier‘s product,

while the ―preferred‖ or ―preferentially-priced‖ offering is the

lowest priced component in data book among comparable

products. Data book positioning is a form of advertising, and

standard or preferred positioning generally means that

customers are more likely to purchase that supplier‘s

components. Although customers may, and sometimes do,

request components that are not published in a data book,

doing so is often cumbersome and increases the cost of the

1 A third category of heavy-duty trucks, ―specialty‖

vehicles, such as fire trucks, typically use automatic

transmissions.

7

component. Thus, data book positioning is essential in the

industry.

Eaton has long been a monopolist in the market for

HD transmissions in North America.2 It began making HD

transmissions in the 1950s, and was the only significant

manufacturer until Meritor entered the market in 1989 and

began offering manual transmissions primarily for linehaul

trucks. By 1999, Meritor had obtained approximately 17% of

the market for sales of HD transmissions, including 30% for

linehaul transmissions. In mid-1999, Meritor and ZF

Friedrichshafen (―ZF AG‖), a leading supplier of HD

transmissions in Europe, formed the joint venture ZF Meritor,

and Meritor transferred its transmissions business into the

joint venture.3 Aside from Meritor, and then ZF Meritor, no

significant external supplier of HD transmissions has entered

the market in the past 20 years.4

One purpose of the ZF Meritor joint venture was to

adapt ZF AG‘s two-pedal automated mechanical

2 At trial, Eaton disputed that it was a monopolist, but

on appeal, does not challenge the jury‘s finding that it

possessed monopoly power in the HD transmissions market

in North America.

3 ZF AG is not a party to this lawsuit.

4 ―External‖ transmission sales do not include

transmissions manufactured by Volvo Group for use in its

own trucks.

8

transmission, ASTronic, which was used exclusively in

Europe, for the North American market. The redesign and

testing took 18 months, and ZF Meritor introduced the

adapted ASTronic model into the North American market in

2001 under the new name FreedomLine. FreedomLine was

the first two-pedal automated mechanical transmission to be

sold in North America.5 When FreedomLine was released,

Eaton projected that automated mechanical transmissions

would account for 30-50% of the market for all HD

transmission sales by 2004 or 2005.

2. Eaton’s Long-Term Agreements

In late 1999 through early 2000, the trucking industry

experienced a 40-50% decline in demand for new heavy-duty

trucks. Shortly thereafter, Eaton entered into new long-term

agreements (―LTAs‖) with each OEM. Although long-term

supply contracts were not uncommon in the industry, and

were also utilized by Meritor in the 1990s, Eaton‘s new LTAs

were unprecedented in terms of their length and coverage of

the market. Eaton signed LTAs with every OEM, and each

LTA was for a term of at least five years.

Although the LTAs‘ terms varied somewhat, the key

provisions were similar. Each LTA included a conditional

rebate provision, under which an OEM would only receive

rebates if it purchased a specified percentage of its

5 Eaton did not produce a two-pedal automated

mechanical transmission at the time, and would not fully

release one until 2004.

9

requirements from Eaton.6 Eaton‘s LTA with Freightliner,

the largest OEM, provided for rebates if Freightliner

purchased 92% or more of its requirements from Eaton.7

Under Eaton‘s LTA with International, Eaton agreed to make

an up-front payment of $2.5 million, and any additional

rebates were conditioned on International purchasing 87% to

97.5% of its requirements from Eaton. The PACCAR LTA

provided for an up-front payment of $1 million, and

conditioned rebates on PACCAR meeting a 90% to 95%

market-share penetration target. Finally, Eaton‘s LTA with

Volvo provided for discounts if Volvo reached a market-share

penetration level of 70% to 78%.8 The LTAs were not true

6 We will refer to these as ―market-share‖ discounts or

―market-penetration‖ discounts. It is important to distinguish

such discounts from quantity or volume discounts. Quantity

discounts provide the buyer with a lower price for purchasing

a specified minimum quantity or volume from the seller. In

contrast, market-share discounts grant the buyer a lower price

for taking a specified minimum percentage of its purchases

from the seller. Phillip E. Areeda & Herbert Hovenkamp,

Antitrust Law ¶ 768, at 169 (3d ed. 2008).

7 In 2003, Freightliner and Eaton modified the

agreement from a fixed 92% goal to a sliding scale, which

entitled Freightliner to different rebates at different market-

penetration levels.

8 The share penetration targets in the Volvo LTA were

lower because Volvo also manufactured transmissions for use

in its own trucks. The commitment to Eaton, plus Volvo‘s

10

requirements contracts because they did not expressly require

the OEMs to purchase a specified percentage of their needs

from Eaton. However, the Freightliner and Volvo LTAs gave

Eaton the right to terminate the agreements if the share

penetration goals were not met. Additionally, if an OEM did

not meet its market-share penetration target for one year,

Eaton could require repayment of all contractual savings.

Each LTA also required the OEM to publish Eaton as

the standard offering in its data book, and under two of the

four LTAs, the OEM was required to remove competitors‘

products from its data book entirely. Freightliner agreed to

exclusively publish Eaton transmissions in its data books

through 2002, but reserved the right to publish ZF Meritor‘s

FreedomLine through the life of the agreement. In 2002,

Freightliner and Eaton revised the LTA to allow Freightliner

to publish other competitors‘ transmissions, but the revised

LTA provided that Eaton had the right to ―renegotiate the

rebate schedule‖ if Freightliner chose to publish a

competitor‘s transmission. Subsequently, Freightliner agreed

to a request by Eaton to remove FreedomLine from all of its

data books. Eaton‘s LTA with International also required that

International list exclusively Eaton transmissions in its

electronic data book. International did, however, publish ZF

Meritor‘s manual transmissions in its printed data book. The

Volvo and PACCAR LTAs did not require that Eaton

products be the exclusive offering, but did require that Eaton

products be listed as the preferred offering. Both Volvo and

own manufactured products, accounted for more than 85% of

Volvo‘s needs.

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PACCAR continued to list ZF Meritor‘s products in their data

books. In the 1990s, Meritor‘s products were listed in all

OEM component data books, and in some cases, had

preferred positioning.

The LTAs also required the OEMs to ―preferential

price‖ Eaton transmissions against competitors‘ equivalent

transmissions. Eaton claims that it sought preferential pricing

to ensure that its low prices were passed on to truck buyers.

However, there were no express requirements in the LTAs

that savings be passed on to truck buyers (i.e., that Eaton‘s

prices be reduced) and there is evidence that the ―preferential

pricing‖ was achieved by both lowering the prices of Eaton‘s

products and raising the prices of competitors‘ products.

Eaton notes that it was ―common‖ for price savings to be

passed down to truck buyers, and a Volvo executive testified

that some of the savings from Eaton products were passed

down while others were kept to improve profit margins.

Plaintiffs, however, emphasize that according to an email sent

by Eaton to Freightliner, the Freightliner LTA required that

ZF Meritor‘s products be priced at a $200 premium over

equivalent Eaton products. Likewise, International agreed to

an ―artificial[] penal[ty]‖ of $150 on all of ZF Meritor‘s

transmissions as of early 2003, and PACCAR imposed a

penalty on customers who chose ZF Meritor‘s products.

Finally, each LTA contained a ―competitiveness‖

clause, which permitted the OEM to purchase transmissions

from another supplier if that supplier offered the OEM a

lower price or a better product, the OEM notified Eaton of the

competitor‘s offer, and Eaton could not match the price or

quality of the product after good faith efforts. The parties

12

dispute the significance of the ―competitiveness‖ clauses.

Eaton maintains that Plaintiffs were free to win the OEMs‘

business simply by offering a better product or a lower price,

while Plaintiffs argue and presented testimony from OEM

officials that, due to Eaton‘s status as a dominant supplier, the

competitiveness clauses were effectively meaningless.

3. Competition under the LTAs and

Plaintiffs’ Exit from the Market

After Eaton entered into its LTAs with the OEMs, ZF

Meritor shifted its marketing focus from the OEM level to a

strategy targeted at truck buyers. Also during this time

period, both ZF Meritor and Eaton experienced quality and

performance issues with their transmissions. For example,

Eaton‘s Lightning transmission, which was an initial attempt

by Eaton to compete with FreedomLine, was ―not perceived

as a good [product]‖ and was ultimately taken off the market.

ZF Meritor‘s FreedomLine and ―G Platform‖ transmissions

required frequent repairs, and in 2002 and 2003, ZF Meritor

faced millions of dollars in warranty claims.

During the life of the LTAs, the OEMs worked with

Eaton to develop a strategy to combat ZF Meritor‘s growth.

On Eaton‘s urging, the OEMs imposed additional price

penalties on customers that selected ZF Meritor products,

―force fed‖ Eaton products to customers, and sought to

persuade truck fleets using ZF Meritor transmissions to shift

to Eaton transmissions. At all times relevant to this case,

Eaton‘s average prices were lower than Plaintiffs‘ average

prices, and on several occasions, Plaintiffs declined to grant

price concessions requested by OEMs. Although Eaton‘s

13

prices were generally lower than Plaintiffs‘ prices, Eaton

never priced at a level below its costs.

By 2003, ZF Meritor determined that it was limited by

the LTAs to no more than 8% of the market, far less than the

30% that it had projected at the beginning of the joint venture.

ZF Meritor officials concluded that the company could not

remain viable with a market share below 10% and therefore

decided to dissolve the joint venture. After ZF Meritor‘s

departure, Meritor remained a supplier of HD transmissions

and became a sales agent for ZF AG to ensure continued

customer access to the FreedomLine. However, Meritor‘s

market share dropped to 4% by the end of fiscal year 2005,

and Meritor exited the business in January 2007.

B. Procedural History

On October 5, 2006, Plaintiffs filed suit against Eaton

in the U.S. District Court for the District of Delaware,

alleging that Eaton used unlawful agreements in restraint of

trade, in violation of Section 1 of the Sherman Act, 15 U.S.C.

§ 1; acted unlawfully to maintain a monopoly, in violation of

Section 2 of the Sherman Act, 15 U.S.C. § 2; and entered into

illegal restrictive dealing agreements, in violation of Section 3

of the Clayton Act, 15 U.S.C. § 14. Specifically, Plaintiffs

alleged that Eaton ―used its dominant position to induce all

heavy duty truck manufacturers to enter into de facto

exclusive dealing contracts with Eaton,‖ and that such

agreements foreclosed Plaintiffs from over 90% of the market

for HD transmission sales. Plaintiffs sought treble damages,

pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, and

14

injunctive relief, pursuant to Section 16 of the Clayton Act,

15 U.S.C. § 26.

On February 17, 2009, Plaintiffs‘ expert, Dr. David

DeRamus (―DeRamus‖), submitted a report on both liability

and damages. On May 11, 2009, Eaton filed a motion,

pursuant to Daubert v. Merrell Dow Pharmaceuticals, Inc.,

509 U.S. 579 (1993), to exclude DeRamus‘s testimony. The

District Court ruled that DeRamus would be allowed to testify

regarding liability, but excluded DeRamus‘s testimony on the

issue of damages on the basis that his damages opinion failed

the reliability requirements of Daubert and the Federal Rules

of Evidence. ZF Meritor LLC v. Eaton Corp., 646 F. Supp.

2d 663 (D. Del. 2009). Plaintiffs filed a motion for

clarification, requesting that DeRamus be allowed to testify to

alternate damages calculations based on other data in his

expert report, or in the alternative, seeking permission for

DeRamus to amend his expert report to present his alternate

damages calculations. The District Court decided to defer

resolution of the damages issue and bifurcate the case.

The parties proceeded to trial on liability. On October

8, 2009, after a four-week trial, the jury returned a complete

verdict for Plaintiffs, finding that Eaton had violated Sections

1 and 2 of the Sherman Act, and Section 3 of the Clayton Act.

Following the verdict, Plaintiffs asked the District Court to

set a damages trial, but no damages trial was set at that time.

On October 30, 2009, Plaintiffs supplemented their earlier

motion for clarification, incorporating additional arguments

based on developments at trial.

15

On November 3, 2009, Eaton filed a renewed motion

for judgment as a matter of law, or in the alternative, for a

new trial. Eaton‘s principal argument was that Plaintiffs

failed to establish that Eaton engaged in anticompetitive

conduct because Plaintiffs did not show, nor did they attempt

to show, that Eaton priced its transmissions below its costs.

Sixteen months later, on March 10, 2011, the District Court

denied Eaton‘s motion, reasoning that Eaton‘s prices were not

dispositive, and that there was sufficient evidence for a jury to

conclude that Eaton‘s conduct unlawfully foreclosed

competition in a substantial portion of the HD transmissions

market. ZF Meritor LLC v. Eaton Corp., 769 F. Supp. 2d 684

(D. Del. 2011).

On August 4, 2011, the District Court denied

Plaintiffs‘ motion for clarification, and denied Plaintiffs‘

request to allow DeRamus to amend his expert report to

include alternate damages calculations. The same day, the

District Court entered an order awarding Plaintiffs $0 in

damages. On August 19, 2011, the District Court entered an

injunction prohibiting Eaton from ―linking discounts and

other benefits to market penetration targets,‖ but stayed the

injunction pending appeal. Eaton filed a timely notice of

appeal and Plaintiffs filed a timely cross-appeal.

II. JURISDICTION AND STANDARD OF REVIEW

The District Court had jurisdiction over this case

pursuant to 28 U.S.C. §§ 1331 and 1337. We have appellate

jurisdiction under 28 U.S.C. § 1291.

16

We exercise plenary review over an order denying a

motion for judgment as a matter of law. LePage’s Inc. v. 3M,

324 F.3d 141, 145 (3d Cir. 2003) (en banc). A motion for

judgment as a matter of law should be granted ―only if,

viewing the evidence in the light most favorable to the

nonmovant and giving it the advantage of every fair and

reasonable inference, there is insufficient evidence from

which a jury reasonably could find liability.‖ Id. at 145-46

(quoting Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153,

1166 (3d Cir. 1993)). We review questions of law underlying

a jury verdict under a plenary standard of review. Id. at 146

(citing Bloom v. Consol. Rail Corp., 41 F.3d 911, 913 (3d Cir.

1994)). Underlying legal questions aside, ―[a] jury verdict

will not be overturned unless the record is critically deficient

of that quantum of evidence from which a jury could have

rationally reached its verdict.‖ Swineford v. Snyder Cnty., 15

F.3d 1258, 1265 (3d Cir. 1994).

We review a district court‘s decision to exclude expert

testimony for abuse of discretion. Montgomery Cnty. v.

Microvote Corp., 320 F.3d 440, 445 (3d Cir. 2003). To the

extent the district court‘s decision involved an interpretation

of the Federal Rules of Evidence, our review is plenary.

Elcock v. Kmart Corp., 233 F.3d 734, 745 (3d Cir. 2000). We

also review a district court‘s decisions regarding discovery

and case management for abuse of discretion. United States

v. Schiff, 602 F.3d 152, 176 (3d Cir. 2010); In re Fine Paper

Antitrust Litig., 685 F.2d 810, 817-18 (3d Cir. 1982).

We review legal conclusions regarding standing de

novo, and the underlying factual determinations for clear

17

error. Interfaith Cmty. Org. v. Honeywell Int’l, Inc., 399 F.3d

248, 253 (3d Cir. 2005).

III. DISCUSSION

A. Effect of the Price-Cost Test

The most significant issue in this case is whether

Plaintiffs‘ allegations under Sections 1 and 2 of the Sherman

Act and Section 3 of the Clayton Act are subject to the price-

cost test or the ―rule of reason‖ applicable to exclusive

dealing claims. Under the rule of reason, an exclusive

dealing arrangement will be unlawful only if its ―probable

effect‖ is to substantially lessen competition in the relevant

market. Tampa Elec. Coal Co. v. Nashville Coal Co., 365

U.S. 320, 327-29 (1961); United States v. Dentsply Int’l, 399

F.3d 181, 191 (3d Cir. 2005); Barr Labs., Inc. v. Abbott

Labs., 978 F.2d 98, 110 (3d Cir. 1992). In contrast, under the

price-cost test, to succeed on a challenge to the defendant‘s

pricing practices, a plaintiff must prove ―that the

[defendant‘s] prices are below an appropriate measure of [the

defendant‘s] costs.‖ Brooke Grp. Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 222 (1993).9

9 Although Plaintiffs brought claims under three

statutes (Sections 1 and 2 of the Sherman Act and Section 3

of the Clayton Act), our analysis regarding the applicability

of the price-cost test is the same for all of Plaintiffs‘ claims.

In order to establish an actionable antitrust violation, a

plaintiff must show both that the defendant engaged in

anticompetitive conduct and that the plaintiff suffered

18

antitrust injury as a result. Atl. Richfield Co. v. USA

Petroleum Co., 495 U.S. 328, 339-40 (1990). Because a lack

of anticompetitive conduct precludes a finding of antitrust

injury, the key question for us is whether Eaton engaged in

anticompetitive conduct. See id. at 339 (―Antitrust injury

does not arise . . . until a private party is adversely affected by

an anticompetitive aspect of the defendant‘s conduct.‖).

Sections 1 and 2 of the Sherman Act and Section 3 of

the Clayton Act each include an anticompetitive conduct

element, although each statute articulates that element in a

slightly different way. Under Section 1 of the Sherman Act, a

plaintiff must establish that the defendant was a party to a

contract, combination or conspiracy that ―imposed an

unreasonable restraint on trade.‖ 15 U.S.C. § 1; In re Ins.

Brokerage Antitrust Litig., 618 F.3d 300, 314-15 (3d Cir.

2010). Under Section 2, a plaintiff must demonstrate that the

defendant willfully acquired or maintained its monopoly

power in the relevant market. 15 U.S.C. § 2; United States v.

Grinnell Corp., 384 U.S. 564, 570-71 (1966). ―A monopolist

willfully acquires or maintains monopoly power when it

competes on some basis other than the merits.‖ LePage’s Inc.

v. 3M, 324 F.3d 141, 147 (3d Cir. 2003) (en banc) (citing

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S.

585, 605 n.32 (1985)). Finally, Section 3 of the Clayton Act

makes it unlawful for a person to enter into an exclusive

dealing contract where the effect of such an agreement is to

substantially lessen competition or create a monopoly. 15

U.S.C. § 14.

19

Eaton urges us to apply the price-cost test, arguing that

Plaintiffs failed to establish that Eaton engaged in

anticompetitive conduct or that Plaintiffs suffered an antitrust

injury because Plaintiffs did not prove—or even attempt to

prove—that Eaton priced its transmissions below an

appropriate measure of its costs. We decline to adopt Eaton‘s

unduly narrow characterization of this case as a ―pricing

practices‖ case, i.e., a case in which price is the clearly

predominant mechanism of exclusion. Plaintiffs consistently

argued that the LTAs, in their entirety, constituted de facto

exclusive dealing contracts, which improperly foreclosed a

substantial share of the market, and thereby harmed

competition. Accordingly, as we will discuss below, we must

evaluate the legality of Eaton‘s conduct under the rule of

reason to determine whether the ―probable effect‖ of such

conduct was to substantially lessen competition in the HD

transmissions market in North America. Tampa Elec., 365

U.S. at 327-29. The price-cost test is not dispositive.

1. Law of Exclusive Dealing

Exclusive dealing claims may be brought under

Sections 1 and 2 of the Sherman Act and Section 3 of the

Clayton Act. LePage’s, 324 F.3d at 157. Additionally, the

Supreme Court has held that the price-cost test is not confined

to any one antitrust statute, and applies to pricing practices

claims under the Sherman Act, the Clayton Act, and the

Robinson-Patman Act. Brooke Grp. Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 222-23 (1993); Atl.

Richfield, 495 U.S. at 339-40. Thus, regardless of which test

applies, that test is applicable to each of Plaintiffs‘ claims.

20

An exclusive dealing arrangement is an agreement in

which a buyer agrees to purchase certain goods or services

only from a particular seller for a certain period of time.

Herbert Hovenkamp, Antitrust Law ¶ 1800a, at 3 (3d ed.

2011). The primary antitrust concern with exclusive dealing

arrangements is that they may be used by a monopolist to

strengthen its position, which may ultimately harm

competition. Dentsply, 399 F.3d at 191. Generally, a

prerequisite to any exclusive dealing claim is an agreement to

deal exclusively. Tampa Elec., 365 U.S. at 326-27; see

Dentsply, 399 F.3d at 193-94; Barr Labs., 978 F.2d at 110 &

n.24.10

An express exclusivity requirement, however, is not

necessary, LePage’s, 324 F.3d at 157, because we look past

the terms of the contract to ascertain the relationship between

the parties and the effect of the agreement ―in the real world.‖

Dentsply, 399 F.3d at 191, 194. Thus, de facto exclusive

dealing claims are cognizable under the antitrust laws.

LePage’s, 324 F.3d at 157.

Exclusive dealing agreements are often entered into for

entirely procompetitive reasons, and generally pose little

threat to competition. Race Tires Am., Inc. v. Hoosier Racing

10

Evidence of an agreement is expressly required

under Section 1 of the Sherman Act and Section 3 of the

Clayton Act. See 15 U.S.C. §§ 1 and 14. However, an

agreement is not necessarily required under Section 2 of the

Sherman Act, which can provide a vehicle for challenging a

dominant firm‘s unilateral imposition of exclusive dealing on

customers. See 15 U.S.C. § 2; Herbert Hovenkamp, Antitrust

Law ¶ 1821a, at 183 (3d ed. 2011).

21

Tire Corp., 614 F.3d 57, 76 (3d Cir. 2010) (―[I]t is widely

recognized that in many circumstances, [exclusive dealing

arrangements] may be highly efficient—to assure supply,

price stability, outlets, investment, best efforts or the like—

and pose no competitive threat at all.‖) (quoting E. Food

Servs. v. Pontifical Catholic Univ. Servs. Ass’n, 357 F.3d 1, 8

(1st Cir. 2004)). For example, ―[i]n the case of the buyer,

they may assure supply, afford protection against rises in

price, enable long-term planning on the basis of known costs,

and obviate the expense and risk of storage in the quantity

necessary for a commodity having a fluctuating demand.‖

Standard Oil Co. v. United States, 337 U.S. 293, 306 (1949).

From the seller‘s perspective, an exclusive dealing

arrangement with customers may reduce expenses, provide

protection against price fluctuations, and offer the possibility

of a predictable market. Id. at 306-07; see also Ryko Mfg. Co.

v. Eden Servs., 823 F.2d 1215, 1234 n.17 (8th Cir. 1987)

(explaining that exclusive dealing contracts can help prevent

dealer free-riding on manufacturer-supplied investments to

promote rival‘s products). As such, competition to be an

exclusive supplier may constitute ―a vital form of rivalry,‖

which the antitrust laws should encourage. Race Tires, 614

F.3d at 83 (quoting Menasha Corp. v. News Am. Mktg. In-

Store, Inc., 354 F.3d 661, 663 (7th Cir. 2004)).

However, ―[e]xclusive dealing can have adverse

economic consequences by allowing one supplier of goods or

services unreasonably to deprive other suppliers of a market

for their goods[.]‖ Jefferson Parish Hosp. Dist. No. 2 v.

Hyde, 466 U.S. 2, 45 (1984) (O‘Connor, J., concurring),

abrogated on other grounds by Ill. Tool Works Inc. v. Indep.

22

Ink, Inc., 547 U.S. 28 (2006); Barry Wright, 724 F.2d at 236

(explaining that ―under certain circumstances[,] foreclosure

might discourage sellers from entering, or seeking to sell in, a

market at all, thereby reducing the amount of competition that

would otherwise be available‖). Exclusive dealing

arrangements are of special concern when imposed by a

monopolist. See Dentsply, 399 F.3d at 187 (―Behavior that

otherwise might comply with antitrust law may be

impermissibly exclusionary when practiced by a

monopolist.‖). For example:

[S]uppose an established manufacturer has long

held a dominant position but is starting to lose

market share to an aggressive young rival. A

set of strategically planned exclusive-dealing

contracts may slow the rival‘s expansion by

requiring it to develop alternative outlets for its

product, or rely at least temporarily on inferior

or more expensive outlets. Consumer injury

results from the delay that the dominant firm

imposes on the smaller rival‘s growth.

Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1802c,

at 64 (2d ed. 2002). In some cases, a dominant firm may be

able to foreclose rival suppliers from a large enough portion

of the market to deprive such rivals of the opportunity to

achieve the minimum economies of scale necessary to

compete. Id.; see LePage’s, 324 F.3d at 159.

Due to the potentially procompetitive benefits of

exclusive dealing agreements, their legality is judged under

the rule of reason. Tampa Elec., 365 U.S. at 327. The

23

legality of an exclusive dealing arrangement depends on

whether it will foreclose competition in such a substantial

share of the relevant market so as to adversely affect

competition. Id. at 328; Barr Labs., 978 F.2d at 110. In

conducting this analysis, courts consider not only the

percentage of the market foreclosed, but also take into

account ―the restrictiveness and the economic usefulness of

the challenged practice in relation to the business factors

extant in the market.‖ Barr Labs., 978 F.2d at 110-11

(quoting Am. Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d

1230, 1251-52 n.75 (3d Cir. 1975)). As the Supreme Court

has explained:

[I]t is necessary to weigh the probable effect of

the contract on the relevant area of effective

competition, taking into account the relative

strength of the parties, the proportionate volume

of commerce involved in relation to the total

volume of commerce in the relevant market

area, and the probable immediate and future

effects which pre-emption of that share of the

market might have on effective competition

therein.

Tampa Elec., 365 U.S. at 329. In other words, an exclusive

dealing arrangement is unlawful only if the ―probable effect‖

of the arrangement is to substantially lessen competition,

rather than merely disadvantage rivals. Id.; Dentsply, 399

F.3d at 191 (―The test [for determining anticompetitive effect]

is not total foreclosure, but whether the challenged practices

bar a substantial number of rivals or severely restrict the

market‘s ambit.‖).

24

There is no set formula for evaluating the legality of an

exclusive dealing agreement, but modern antitrust law

generally requires a showing of significant market power by

the defendant, Tampa Elec., 365 U.S. at 329; Race Tires, 614

F.3d at 74-75; LePage’s, 324 F.3d at 158, substantial

foreclosure, Tampa Elec., 365 U.S. at 327-28; United States

v. Microsoft Corp., 253 F.3d 34, 69 (D.C. Cir. 2001),

contracts of sufficient duration to prevent meaningful

competition by rivals, CDC Techs., Inc. v. IDEXX Labs., Inc.,

186 F.3d 74, 81 (2d Cir. 1999); Omega Envtl., Inc. v.

Gilbarco, Inc., 127 F.3d 1157, 1163 (9th Cir. 1997), and an

analysis of likely or actual anticompetitive effects considered

in light of any procompetitive effects, Race Tires, 614 F.3d at

75; Dentsply, 399 F.3d at 194; Barr Labs., 978 F.2d at 111.

Courts will also consider whether there is evidence that the

dominant firm engaged in coercive behavior, Race Tires, 614

F.3d at 77; SmithKline Corp. v. Eli Lilly & Co., 575 F.2d

1056, 1062 (3d Cir. 1978), and the ability of customers to

terminate the agreements, Dentsply, 399 F.3d at 193-94. The

use of exclusive dealing by competitors of the defendant is

also sometimes considered. Standard Oil, 337 U.S. at 309,

314; NicSand, Inc. v. 3M Co., 507 F.3d 442, 454 (6th Cir.

2007).

2. Brooke Group and the Price-Cost test

We turn now to some fundamental principles regarding

predatory pricing claims and the price-cost test. ―Predatory

pricing may be defined as pricing below an appropriate

measure of cost for the purpose of eliminating competitors in

the short run and reducing competition in the long run.‖

Cargill, Inc. v. Monfort of Colo., 479 U.S. 104, 117 (1986);

25

see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

U.S. 574, 584 n.8 (1986); Advo, Inc. v. Phila. Newspapers,

Inc., 51 F.3d 1191, 1198 (3d Cir. 1995). The Supreme Court

has expressed deep skepticism of predatory pricing claims.

See Cargill, 479 U.S. at 121 n.17 (―Although the

commentators disagree as to whether it is ever rational for a

firm to engage in such conduct, it is plain that the obstacles to

the successful execution of a strategy of predation are

manifold, and that the disincentives to engage in such a

strategy are accordingly numerous.‖) (citations omitted);

Matsushita, 475 U.S. at 589 (―[P]redatory pricing schemes

are rarely tried, and even more rarely successful.‖) (citations

omitted). In the typical predatory pricing scheme, a firm

reduces the sale price of its product to below-cost, intending

to drive competitors out of the business. Weyerhaeuser Co. v.

Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 318

(2007). Then, once competitors have been eliminated, the

firm raises its prices to supracompetitive levels. Id. For such

a scheme to make economic sense, the firm must recoup the

losses suffered during the below-cost phase in the

supracompetitive phase. Id.; see Matsushita, 475 U.S. at 589

(explaining that success under such a scheme is ―inherently

uncertain‖ because the firm must sustain definite short-term

losses, but the long-run gain depends on successfully

eliminating competition).

In Brooke Group Ltd. v. Brown & Williamson Tobacco

Corp., 509 U.S. at 222-24, the Supreme Court fashioned a

two-part test that reflected this ―economic reality.‖

Weyerhaeuser, 549 U.S. at 318. The Court held that, to

succeed on a predatory pricing claim, the plaintiff must

26

prove: (1) ―that the prices complained of are below an

appropriate measure of [the defendant‘s] costs‖; and (2) that

the defendant had ―a dangerous probability . . . of recouping

its investment in below-cost prices.‖ Brooke Grp., 509 U.S.

at 222-24 (citations omitted). We are concerned only with the

first requirement, which has become known as the price-cost

test. In adopting the price-cost test, the Court rejected the

notion that above-cost prices that are below general market

levels or below the costs of a firm‘s competitors are

actionable under the antitrust laws. Id. at 223. ―Low prices

benefit consumers regardless of how those prices are set, and

so long as they are above predatory levels [i.e., above-cost],

they do not threaten competition.‖ Id. (quoting Atl. Richfield

Co. v. USA Petroleum Co., 495 U.S. 328, 340 (1990)). Low,

but above-cost, prices are generally procompetitive because

―the exclusionary effect of prices above a relevant measure of

cost [generally] reflects the lower cost structure of the alleged

predator, and so represents competition on the merits[.]‖ Id.;

see Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.

477, 488 (1977) (―The antitrust laws . . . were enacted for ‗the

protection of competition, not competitors.‘‖) (quoting Brown

Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). The

Court acknowledged that there may be situations in which

above-cost prices are anticompetitive, but stated that it ―is

beyond the practical ability of a judicial tribunal‖ to ascertain

whether above-cost pricing is anticompetitive ―without

courting intolerable risks of chilling legitimate price-cutting.‖

Brooke Grp., 509 U.S. at 223 (citing Phillip Areeda &

Herbert Hovenkamp, Antitrust Law ¶¶ 714.2, 714.3 (Supp.

2002)). ―To hold that the antitrust laws protect competitors

from the loss of profits due to [above-cost] price competition

27

would, in effect, render illegal any decision by a firm to cut

prices in order to increase market share. The antitrust laws

require no such perverse result.‖ Id. (quoting Cargill, 479

U.S. at 116). Significantly, because ―[c]utting prices in order

to increase business often is the very essence of competition .

. . , [i]n cases seeking to impose antitrust liability for prices

that are too low, mistaken inferences are ‗especially costly,

because they chill the very conduct that antitrust laws are

designed to protect.‘‖ Pac. Bell Tel. Co. v. linkLine

Commc’ns, Inc., 555 U.S. 438, 451 (2009) (quoting

Matsushita, 475 U.S. at 594) (additional citations omitted).

3. Effect of the Price-Cost Test on

Plaintiffs’ Exclusive Dealing Claims

Eaton argues that principles from the predatory pricing

case law apply in this case because Plaintiffs‘ claims are, at

their core, no more than objections to Eaton offering prices,

through its rebate program, which Plaintiffs were unable to

match. Eaton contends that Plaintiffs have identified nothing,

other than Eaton‘s pricing practices, that incentivized the

OEMs to enter into the LTAs, and because price was the

incentive, we must apply the price-cost test. We

acknowledge that even if a plaintiff frames its claim as one of

exclusive dealing, the price-cost test may be dispositive.

Implicit in the Supreme Court‘s creation of the price-cost test

was a balancing of the procompetitive justifications of above-

cost pricing against its anticompetitive effects (as well as the

anticompetitive effects of allowing judicial inquiry into

above-cost pricing), and a conclusion that the balance always

tips in favor of allowing above-cost pricing practices to stand.

See linkLine, 555 U.S. at 451; Brooke Grp., 509 U.S. at 223.

28

Thus, in the context of exclusive dealing, the price-cost test

may be utilized as a specific application of the ―rule of

reason‖ when the plaintiff alleges that price is the vehicle of

exclusion. See, e.g., Concord Boat Corp. v. Brunswick Corp.,

207 F.3d 1039, 1060-63 (8th Cir. 2000).

Here, Eaton argues that the price-cost test is

dispositive, and therefore that Plaintiffs‘ claims must fail

because Plaintiffs failed to show that the market-share rebates

offered by Eaton pursuant to the LTAs resulted in below-cost

prices. We do not disagree that predatory pricing principles,

including the price-cost test, would control if this case

presented solely a challenge to Eaton‘s pricing practices.11

11

Despite the arguments of amicus curiae, the

American Antitrust Institute, our decision in LePage’s v. 3M

does not indicate otherwise. In LePage’s, we declined to

apply the price-cost test to a challenge to a bundled rebate

scheme, reasoning that such a scheme was better analogized

to unlawful tying than to predatory pricing. See 324 F.3d at

155. In that case, the plaintiff (LePage‘s) was the market

leader in sales of ―private label‖ (store brand) transparent

tape. Id. at 144. As LePage‘s market share fell, it brought

suit against 3M, alleging that 3M, which manufactured

Scotch tape, some private label tape, and a number of other

products, leveraged its monopoly power over Scotch brand

tape and other products to monopolize the private label tape

market. Id. at 145. Specifically, LePage‘s challenged 3M‘s

multi-tiered bundled rebate program, which offered

progressively higher rebates when customers increased

purchases across 3M‘s different product lines. Id. The rebate

29

programs also set customer-specific target growth rates. Id. at

154. The sizes of the rebates were linked to the number of

product lines in which the targets were met; if a customer

failed to meet the target for any one product, it would lose the

rebates across all product lines. Id. LePage‘s could not offer

these discounts because it did not sell the same diverse array

of products as 3M. Id. at 155.

Relying on Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 509 U.S. 209 (1993), 3M argued that its

bundled rebate program was lawful because the rebates never

resulted in below-cost pricing. We disagreed, reasoning that

the principal anticompetitive effect of 3M‘s bundled rebates

was analogous to an unlawful tying arrangement: when

offered by a monopolist, the rebates ―may foreclose portions

of the market to a potential competitor who does not

manufacture an equally diverse group of products and who

therefore cannot make a comparable offer.‖ LePage’s, 324 at

155.

For several reasons, we interpret LePage’s narrowly.

Most important, in light of the analogy drawn in LePage’s

between bundled rebates and unlawful tying, which ―cannot

exist unless two separate product markets have been linked,‖

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 21

(1984), abrogated on other grounds by Ill. Tool Works Inc. v.

Indep. Ink, Inc., 547 U.S. 28 (2006), LePage’s is inapplicable

where, as here, only one product is at issue and the plaintiffs

have not made any allegations of bundling or tying. The

reasoning of LePage’s is limited to cases in which a single-

product producer is excluded through a bundled rebate

30

program offered by a producer of multiple products, which

conditions the rebates on purchases across multiple different

product lines. Accordingly, we join our sister circuits in

holding that the price-cost test applies to market-share or

volume rebates offered by suppliers within a single-product

market. See NicSand, Inc. v. 3M Co., 507 F.3d 442, 452 (6th

Cir. 2007); Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039, 1061 (8th Cir. 2000); Barry Wright Corp. v. ITT

Grinnell Corp., 724 F.2d 227, 236 (1st Cir. 1983).

Additionally, several of the bases on which we

distinguished Brooke Group have been undermined by

intervening Supreme Court precedent, which counsels caution

in extending LePage’s. For example, we indicated in

LePage’s, 324 F.3d at 151, that Brooke Group might be

confined to the Robinson-Patman Act, but the Supreme Court

has made clear that the standard adopted in Brooke Group

also applies to predatory pricing claims under the Sherman

Act. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber

Co., 549 U.S. 312, 318 n.1 (2007). Additionally, LePage’s,

324 F.3d at 151-52, suggested that Brooke Group is not

applicable in cases involving monopolists, but the Supreme

Court has since applied Brooke Group‘s price-cost test to

claims against a monopolist, Pac. Bell Tel. Co. v. linkLine

Commc’ns, Inc., 555 U.S. 438, 447-48 (2009), and a

monopsonist, Weyerhaeuser, 549 U.S. at 320-25. Finally, we

observed in LePage’s that, in the years following Brooke

Group, the Supreme Court had only cited the case four times

(and for unrelated propositions), but since LePage’s, the

Court has reaffirmed and extended Brooke Group. See

31

The lesson of the predatory pricing case law is that, generally,

above-cost prices are not anticompetitive, and although there

may be rare cases where above-cost prices are

anticompetitive in the long run, it is ―beyond the practical

ability‖ of courts to identify those rare cases without creating

an impermissibly high risk of deterring legitimate

procompetitive behavior (i.e., price-cutting). linkLine, 555

U.S. at 452; Weyerhaeuser, 549 U.S. at 318-19; Brooke Grp.,

509 U.S. at 223. These principles extend to above-cost

discounting or rebate programs, which condition the

discounts or rebates on the customer‘s purchasing of a

specified volume or a specified percentage of its requirements

from the seller. See NicSand, 507 F.3d at 451-52 (applying

price-cost test to a challenge to up-front payments offered by

a supplier to several large retailers on the basis that such

payments were ―nothing more than ‗price reductions offered

to the buyers for the exclusive right to supply a set of stores

under multi-year contracts‘‖); Concord Boat, 207 F.3d at

1060-63 (applying price-cost test to volume discounts and

market-share discounts offered by a manufacturer); Barry

Wright, 724 F.2d at 232 (applying the price-cost test to

uphold discounts linked to a requirements contract); see also

linkLine, 555 U.S. at 447-48; Weyerhaeuser, 549 U.S. at 325.

In doing so, the Court emphasized the importance of Brooke

Group in light of ―developments in economic theory and

antitrust jurisprudence,‖ and downplayed the significance of

seemingly inconsistent circuit court antitrust precedent from

the 1950s and 1960s, some of which we referenced in

LePage’s. See linkLine, 555 U.S. at 452 n.3.

32

Race Tires, 614 F.3d at 79 (―[I]t is no more an act of

coercion, collusion, or [other anticompetitive conduct] for [a

supplier] . . . to offer more money to [a customer] than it is

for such [a] supplier[] to offer the lowest . . . prices.‖).

Moreover, a plaintiff‘s characterization of its claim as

an exclusive dealing claim does not take the price-cost test off

the table. Indeed, contracts in which discounts are linked to

purchase (volume or market share) targets are frequently

challenged as de facto exclusive dealing arrangements on the

grounds that the discounts induce customers to deal

exclusively with the firm offering the rebates. Hovenkamp ¶

1807a, at 132. However, when price is the clearly

predominant mechanism of exclusion, the price-cost test tells

us that, so long as the price is above-cost, the procompetitive

justifications for, and the benefits of, lowering prices far

outweigh any potential anticompetitive effects. See Brooke

Grp., 509 U.S. at 223; Concord Boat, 207 F.3d at 1062

(noting that there is always a legitimate business justification

for lowering prices: attempting to attract additional business).

In each of the cases relied upon by Eaton, the Supreme

Court applied the price-cost test, regardless of the way in

which the plaintiff cast its grievance, because pricing itself

operated as the exclusionary tool. For example, in Cargill,

Inc. v. Monfort of Colorado, Inc., the plaintiff argued that a

proposed merger between vertically integrated firms violated

Section 7 of the Clayton Act because the result of the merger

would have been to substantially lessen competition or create

a monopoly. 479 U.S. at 114. The plaintiff offered, as a

theory of antitrust injury, that it faced a threat of lost profits

stemming from the possibility that the defendant, after the

33

merger, would lower its prices to a level at or above-cost. Id.

at 114-15. The plaintiff claimed that it would have to respond

by lowering its prices, which would cause it to suffer a loss in

profitability. Id. at 115. The Supreme Court held that such a

theory did not present a cognizable antitrust injury, reasoning

that ―the antitrust laws do not require the courts to protect

small businesses from the loss of profits due to continued

[above-cost] competition.‖ Id. at 116.

Atlantic Richfield Co. v. USA Petroleum Co. involved

an allegation that a vertical price-fixing agreement was

unlawful under Section 1 of the Sherman Act. 495 U.S. at

331. In that case, the plaintiff was an independent retail

marketer of gasoline, which bought gasoline from major

petroleum companies for resale under its own name. Id. The

defendant was an integrated oil company, which sold directly

to consumers through its own stations, and sold indirectly

through brand dealers. Id. Facing competition from

independent marketers like the plaintiff, the defendant

adopted a new marketing strategy, under which it encouraged

its dealers to match the retail prices offered by independents

by offering discounts and reducing the dealers‘ costs. Id. at

331-32. The plaintiff brought suit under the Sherman Act,

alleging that the defendant conspired with its dealers to sell

gasoline at below-market levels. Id. at 332. The district court

granted summary judgment for the defendant on the basis that

the plaintiff had not shown that the defendant engaged in

predatory pricing, and thus had not shown any antitrust

injury. Id. at 333. The U.S. Court of Appeals for the Ninth

Circuit reversed, USA Petroleum Co. v. Atl. Richfield Co.,

859 F.2d 687, 693 (9th Cir. 1988), reasoning that a showing

34

of predatory pricing was not necessary to establish antitrust

injury; rather, the antitrust laws were designed to ensure that

market forces alone determine what goods and services are

offered, and at what price they are sold, and thus, an antitrust

injury could result from a disruption in the market. The

Supreme Court disagreed, explaining that where a firm (or a

group of firms) lowers prices pursuant to a vertical

agreement, but maintains those prices above predatory levels,

any business lost by rivals cannot be viewed as an

anticompetitive consequence of the agreement. Atl. Richfield,

495 U.S. at 337. ―A firm complaining about the harm it

suffers from nonpredatory price competition is really

claiming that it is unable to raise prices.‖ Id. at 337-38.

In Brooke Group, the plaintiff and the defendant were

competitors in the cigarette market in the early 1980s. 509

U.S. at 212. At that time, demand for cigarettes in the United

States was declining and the plaintiff, once a major force in

the industry, had seen its market share drop to 2%. Id. at 214.

In response, the plaintiff developed a line of generic

cigarettes, which were significantly cheaper than branded

cigarettes. Id. The plaintiff promoted the generic cigarettes

at the wholesale level by offering rebates that increased with

the volume of cigarettes ordered. Id. Losing volume and

profits on its branded products, the defendant entered the

generic cigarette market. Id. at 215. At the retail level, the

suggested price of the defendant‘s generic cigarettes was the

same as that of the plaintiff‘s cigarettes, but the defendant‘s

volume discounts to wholesalers were larger. Id. The

plaintiff responded by increasing its wholesale rebates, and a

price war ensued. Id. at 216. Subsequently, the plaintiff filed

35

a complaint against the defendant under the Robinson-Patman

Act, 15 U.S.C. § 13(a), alleging that the defendant‘s volume

rebates amounted to unlawful price discrimination. Id. The

plaintiff explained that it would have been unable to reduce

its wholesale rebates without losing substantial market share.

Id. Accordingly, because the ―essence‖ of the plaintiff‘s

claim was that its ―rival ha[d] priced its products in an unfair

manner with an object to eliminate or retard competition and

thereby gain and exercise control over prices in the relevant

market,‖ the plaintiff had an obligation to show that the

defendant‘s prices were below its costs. Id. at 222.

Here, in contrast to Cargill, Atlantic Richfield, and

Brooke Group, Plaintiffs did not rely solely on the

exclusionary effect of Eaton‘s prices, and instead highlighted

a number of anticompetitive provisions in the LTAs.

Plaintiffs alleged that Eaton used its position as a supplier of

necessary products to persuade OEMs to enter into

agreements imposing de facto purchase requirements of

roughly 90% for at least five years, and that Eaton worked in

concert with the OEMs to block customer access to Plaintiffs‘

products, thereby ensuring that Plaintiffs would be unable to

build enough market share to pose any threat to Eaton‘s

monopoly. Therefore, because price itself was not the clearly

predominant mechanism of exclusion, the price-cost test

cases are inapposite, and the rule of reason is the proper

framework within which to evaluate Plaintiffs‘ claims.

We recognize that Eaton‘s rebates were part of

Plaintiffs‘ case. DeRamus testified about the exclusionary

effect of the rebates, OEM officials testified that Eaton

offered lower prices, and Plaintiffs‘ counsel stated in oral

36

argument that part of the reason ZF Meritor could not

increase sales above a certain level was that ―the OEMs were

trying to hit those [share-penetration] targets to get their

money from Eaton.‖ Eaton‘s post-rebate prices were

attractive to the OEMs, and Eaton‘s low prices may, in fact,

have been an inducement for the OEMs to enter into the

LTAs. That fact is not irrelevant, as it may help explain why

the OEMs agreed to otherwise unfavorable terms and it may

help to rebut an argument that the agreements were

inefficient. Hovenkamp ¶ 1807b, at 134. However, contrary

to Eaton‘s assertions, that fact is not dispositive.

Plaintiffs presented considerable evidence that Eaton

was a monopolist in the industry and that it wielded its

monopoly power to effectively force every direct purchaser of

HD transmissions to enter into restrictive long-term

agreements, despite the inclusion in such agreements of terms

unfavorable to the OEMs and their customers. Significantly,

there was considerable testimony that the OEMs did not want

to remove ZF Meritor‘s transmissions from their data books,

but that they were essentially forced to do so or risk financial

penalties or supply shortages. Several OEM officials testified

that exclusive data book listing was not a common practice in

the industry and, in fact, it was probably detrimental to

customers. An email between Freightliner employees stated:

―From a customer perspective, publishing [ZF Meritor‘s]

product is probably the right thing to do and [it] should never

have been taken out of the book. It is a good product with

considerable demand in the marketplace.‖ The email went on

to conclude, however, that including ZF Meritor‘s products

would not be ―prudent‖ because it would jeopardize

37

Freightliner‘s relationship with Eaton. Eaton itself even

acknowledged that the OEMs were dissatisfied. Internal

Eaton correspondence reveals that PACCAR complained that

the LTAs were preventing it from promoting a competitive

product (FreedomLine), which was being demanded by truck

buyers. In fact, PACCAR felt that Eaton was holding it

―hostage.‖

Plaintiffs also introduced evidence that not only were

the rebates conditioned on the OEMs meeting the market

penetration targets, but so too was Eaton‘s continued

compliance with the agreements. As one OEM executive

testified, if the market penetration targets were not met, the

OEMs ―would have a big risk of cancellation of the contract,

price increases, and shortages if the market [was] difficult.‖

Eaton was a monopolist in the HD transmissions market, and

even if an OEM decided to forgo the rebates and purchase a

significant portion of its requirements from another supplier,

there would still have been a significant demand from truck

buyers for Eaton products. Therefore, losing Eaton as a

supplier was not an option.

Accordingly, this is not a case in which the

defendant‘s low price was the clear driving force behind the

customer‘s compliance with purchase targets, and the

customers were free to walk away if a competitor offered a

better price. Compare Concord Boat, 207 F.3d at 1063 (in

deciding to apply price-cost test, noting that customers were

free to walk away at any time and did so when the

defendant‘s competitors offered better discounts), with

Dentsply, 399 F.3d at 189-96 (applying exclusive dealing

analysis where the defendant threatened to refuse to continue

38

dealing with customers if customers purchased rival‘s

products, and no customer could stay in business without the

defendant‘s products). Rather, Plaintiffs introduced evidence

that compliance with the market penetration targets was

mandatory because failing to meet such targets would

jeopardize the OEMs‘ relationships with the dominant

manufacturer of transmissions in the market. See Dentsply,

399 F.3d at 194 (noting that ―[t]he paltry penetration in the

market by competitors over the years has been a refutation

of‖ the theory that a competitor could steal the defendant‘s

customers by offering a better deal or a lower price ―by

tangible and measurable results in the real world‖); id. at 195

(explaining that an exclusivity policy imposed by a dominant

firm is especially troubling where it presents customers with

an ―all-or-nothing‖ choice).

Although the Supreme Court has created a safe harbor

for above-cost discounting, it has not established a per se rule

of non-liability under the antitrust laws for all contractual

practices that involve above-cost pricing. See Cascade

Health Solutions v. PeaceHealth, 515 F.3d 883, 901 (9th Cir.

2007) (stating that the Supreme Court‘s predatory pricing

decisions have not ―go[ne] so far as to hold that in every case

in which a plaintiff challenges low prices as exclusionary

conduct[,] the plaintiff must prove that those prices were

below cost‖). Nothing in the case law suggests, nor would it

be sound policy to hold, that above-cost prices render an

otherwise unlawful exclusive dealing agreement lawful. We

decline to impose such an unduly simplistic and mechanical

rule because to do so would place a significant portion of

39

anticompetitive conduct outside the reach of the antitrust laws

without adequate justification.

―[T]he means of illicit exclusion, like the means of

legitimate competition, are myriad.‖ Microsoft, 253 F.3d at

58; LePage’s, 324 F.3d at 152 (―‗Anticompetitive conduct‘

can come in too many different forms, and is too dependent

on context, for any court or commentator ever to have

enumerated all the varieties.‖) (quoting Caribbean Broad

Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1087

(D.C. Cir. 1998)). The law has long recognized forms of

exclusionary conduct that do not involve below-cost pricing,

including unlawful tying, Jefferson Parish, 446 U.S. at 21;

Standard Oil, 337 U.S. at 305-06, enforcement of a legal

monopoly provided by a patent procured through fraud,

LePage’s, 324 F.3d at 152 (citing Walker Process Equip., Inc.

v. Food Mach. & Chem. Corp., 382 U.S. 172, 174 (1965)),

refusal to deal, Aspen Skiing Co. v. Aspen Highlands Skiing

Corp., 472 U.S. 585, 601-02 (1985); Otter Tail Power Co. v.

United States, 410 U.S. 366 (1973), exclusive dealing, Tampa

Electric, 365 U.S. at 327; Dentsply, 399 F.3d at 184, and

other unfair tortious conduct targeting competitors, Conwood

Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002);

Int’l Travel Arrangers, Inc. v. Western Airlines, Inc., 623

F.2d 1255 (8th Cir. 1980).

Despite Eaton‘s arguments to the contrary, we find

nothing in the Supreme Court‘s recent predatory pricing

decisions to indicate that the Court intended to overturn

decades of other precedent holding that conduct that does not

result in below-cost pricing may nevertheless be

anticompetitive. Rather, as we explained above, Brooke

40

Group and the cases preceding it each involved an allegation

that the defendant‘s pricing itself operated as the exclusionary

tool. See Brooke Grp., 509 U.S. at 212-22; Atl. Richfield, 495

U.S. at 331-38; Cargill, 409 U.S. at 114-16. Eaton places

particular emphasis on two recent cases, arguing that such

cases demonstrate the Supreme Court‘s willingness to extend

the price-cost test beyond the traditional predatory pricing

context. However, neither of these cases suggests that the

price-cost test applies to the exclusive dealing claims at issue

in our case.

In Weyerhaeuser Co. v. Ross-Simmons Hardwood

Lumber Co., 549 U.S. at 315, 320, the Supreme Court applied

the price-cost test to a case involving an allegation of

predatory bidding by a monopsonist.12

In a predatory bidding

scheme, a purchaser of inputs bids up the market price of a

critical input to such high levels that rival buyers cannot

survive, and as a result acquires or maintains monopsony

power. Id. Then, ―if all goes as planned,‖ once rivals have

been driven out, the predatory bidder will reap monopsonistic

profits to offset the losses that it suffered during the high-

bidding stage. Id. at 321. Therefore, the Court explained,

predatory pricing and predatory bidding claims are

―analytically similar.‖ Id. ―Both claims involve the

12

Monopsony power is market power on the buy (or

input) side of the market. Weyerhaeuser, 549 U.S. at 320.

―As such, a monopsony is to the buy side of the market what

a monopoly is to the sell side[.]‖ Id. (citing Roger Blair &

Jeffrey Harrison, Antitrust Policy and Monopsony, 76 Cornell

L. Rev. 297, 301, 320 (1991)).

41

deliberate use of unilateral pricing measures for

anticompetitive purposes.‖ Id. at 322. Moreover, the Court

noted, bidding up input prices, like lowering costs, is often

―the very essence of competition.‖ Id. at 323 (citing Brooke

Grp., 509 U.S. at 226). ―Just as sellers use output prices to

compete for purchasers, buyers use bid prices to compete for

scarce inputs. There are myriad legitimate reasons—ranging

from benign to affirmatively procompetitive—why a buyer

might bid up input prices.‖ Id. Furthermore, high bidding

will often benefit consumers because it will likely lead to the

firm‘s acquisition of more inputs, which will generally lead to

the manufacture of more outputs, and an increase in outputs

generally results in lower prices for consumers. Id. at 324.

Accordingly, the Supreme Court adopted a variation of the

price-cost test for allegations of predatory bidding: ―[a]

plaintiff must prove that the alleged predatory bidding led to

below-cost pricing of the predator‘s outputs.‖ Id. at 325. In

other words, the firm‘s predatory bidding must have caused

the cost of the relevant output to increase above the revenues

generated by the sale of such output. Id.

In Pacific Bell Telephone Co. v. linkLine

Communications, Inc., the Supreme Court relied, in part, on

the price-cost test to hold that the plaintiffs‘ price-squeezing

claim was not cognizable under the Sherman Act. 555 U.S. at

457. In that case, the plaintiffs alleged that the defendant, an

integrated firm that sold inputs at wholesale and sold finished

goods at retail, drove its competitors out of the market by

raising the wholesale price while simultaneously lowering the

retail price. Id. at 442. The Court held that, pursuant to

Verizon Communications Inc. v. Trinko, LLP, 540 U.S. at

42

409-10, the wholesale claim was not cognizable because the

defendant had no antitrust duty to deal with its competitors at

the wholesale level, and pursuant to Brooke Group, the retail

claim was not cognizable because the defendant‘s retail prices

were above cost. linkLine, 555 U.S. at 457. As to the retail

claim, the Court explained that ―recognizing a price-squeeze

claim where the defendant‘s retail price remains above cost

would invite the precise harm‖ the price-cost test was

designed to avoid: a firm might refrain from aggressive price

competition to avoid potential antitrust liability. Id. at 451-

52. Recognizing that the plaintiffs were trying to combine

two non-cognizable claims into a new form of antitrust

liability, the Court explained that ―[t]wo wrong claims do not

make one that is right.‖ Id. at 457.

Contrary to Eaton‘s argument, neither Weyerhaeuser

nor linkLine stands for the proposition that the price-cost test

applies here. Weyerhaeuser established the straightforward

principle that the exercise of market power on prices for the

purpose of driving out competitors should be judged by the

same standard, whether such power is exercised on the input

or output side of the market. See 549 U.S. at 321, 325. And

linkLine did no more than hold that two antitrust theories

cannot be combined to form a new theory of antitrust liability.

See 555 U.S. at 457. The plaintiffs‘ retail-level claim in

linkLine was a traditional pricing practices claim, and

therefore indistinguishable from the pricing practices claims

43

in Brooke Group, Atlantic Richfield, and Cargill. 555 U.S. at

451-52, 457.13

13

Eaton also relies heavily on the Supreme Court‘s

statement in Atlantic Richfield v. USA Petroleum Co. that

price-cost principles apply ―regardless of the type of antitrust

claim involved.‖ 495 U.S. at 340. When read in context,

however, it is clear that this statement means that the price-

cost test applies regardless of the statute under which a

pricing practices claim is brought, not that the price-cost

applies regardless of the type of anticompetitive conduct.

In Atlantic Richfield, the plaintiffs argued that no

showing of below-cost pricing was required to establish

antitrust injury for a claim of illegal price-fixing under

Section 1 of the Sherman Act because the price agreement

itself was illegal, and any losses that stem from such an

agreement, by definition, flow from that which makes the

defendant‘s conduct unlawful. Id. at 338. The Supreme

Court rejected that argument, reasoning that although price-

fixing is unlawful under Section 1, a plaintiff does not suffer

antitrust injury unless it is adversely affected by an

anticompetitive aspect of the defendant‘s conduct, and ―in the

context of pricing practices, only predatory pricing has the

requisite anticompetitive effect.‖ Id. at 339 (citing Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487 (1977))

(additional citations omitted). It was in this in context, in

rejecting an argument that Section 1 was somehow exempt

from the price-cost test, that the Supreme Court made the

broad statement that it has ―adhered to . . . [price-cost]

44

In contrast to the price-cost test line of cases, here,

Plaintiffs do not allege that price itself functioned as the

exclusionary tool. As such, we conclude that the price-cost

test is not adequate to judge the legality of Eaton‘s conduct.

Although prices are unlikely to exclude equally efficient

rivals unless they are below-cost, exclusive dealing

arrangements can exclude equally efficient (or potentially

equally efficient) rivals, and thereby harm competition,

irrespective of below-cost pricing. See Dentsply, 399 F.3d at

191. Where, as here, a dominant supplier enters into de facto

exclusive dealing arrangements with every customer in the

principle[s] regardless of the type of antitrust claim

involved.‖ See id. at 340.

The Court‘s discussion following this statement

supports our interpretation. The Court went on to explain

that, for purposes of determining whether a plaintiff has

suffered antitrust injury in a pricing practices case, Section 1

is no different than, for example, the plaintiff‘s allegation in

Cargill, Inc. v. Monfort of Colorado, Inc. that the defendants‘

unlawful merger under Section 7 of the Clayton Act caused

antitrust injury. Id. at 340 (citing Cargill, 479 U.S. at 116)

(―To be sure, the source of the price competition in the instant

case was an agreement allegedly unlawful under § 1 of the

Sherman Act rather than a merger in violation of § 7 of the

Clayton Act. But that difference is not salient.‖). Moreover,

Atlantic Richfield was decided before LePage’s and we did

not interpret the ―regardless of the type of antitrust claim

involved‖ language as mandating the application of the price-

cost test to 3M‘s bundled rebates.

45

market, other firms may be driven out not because they

cannot compete on a price basis, but because they are never

given an opportunity to compete, despite their ability to offer

products with significant customer demand. See id. at 191,

194. Therefore, Eaton‘s attempt to characterize this case as a

pricing practices case, subject to the price-cost test, is

unavailing. We hold that, instead, the rule of reason from

Tampa Electric and its progeny must be applied to evaluate

Plaintiffs‘ claims.

B. Proof of Anticompetitive

Conduct and Antitrust Injury

We turn now to Eaton‘s contention that even leaving

aside the price-cost test, Plaintiffs failed to prove that Eaton‘s

LTAs were anticompetitive or that they caused antitrust

injury to Plaintiffs. The rule of reason governs Plaintiffs‘

claims under Section 1 and Section 2 of the Sherman Act, and

Section 3 of the Clayton Act. See LePage’s, 324 F.3d at 157

& n.10 (explaining that exclusive dealing claims are

cognizable under Sections 1 and 2 of the Sherman Act and

Section 3 of the Clayton Act, and evaluated under the same

rule of reason); see also Section III.A, supra, at n.9. Under

the rule of reason, an exclusive dealing arrangement is

anticompetitive only if its ―probable effect‖ is to substantially

lessen competition in the relevant market, rather than merely

disadvantage rivals. Tampa Elec., 365 U.S. at 328-29.

In addition to establishing a statutory violation, a

plaintiff must demonstrate that it suffered antitrust injury.

Race Tires, 614 F.3d at 75. To establish antitrust injury, the

plaintiff must demonstrate: ―(1) harm of the type the antitrust

46

laws were intended to prevent; and (2) an injury to the

plaintiff which flows from that which makes defendant‘s acts

unlawful.‖ Id. at 76 (quoting Gulfstream III Assocs. Inc. v.

Gulfstream Aerospace Corp., 995 F.2d 425, 429 (3d Cir.

1993)) (additional citation omitted).

Our inquiry on appeal has several components. First,

we examine whether the LTAs could reasonably be viewed as

exclusive dealing arrangements, despite the fact that the

LTAs covered less than 100% of the OEMs‘ purchase

requirements and contained no express exclusivity provisions.

Second, because the unique characteristics of the HD

transmissions market bear heavily on our inquiry, we review

Eaton‘s monopoly power, the concentrated nature of the

market, and the ability of a monopolist in Eaton‘s position to

engage in coercive conduct. Third, we discuss the

anticompetitive effects of the various provisions in the LTAs,

and consider Eaton‘s procompetitive justifications for the

agreements. Finally, we consider whether Plaintiffs

established that they suffered antitrust injury as a result of

Eaton‘s conduct.

1. De Facto Partial Exclusive Dealing

A threshold requirement for any exclusive dealing

claim is necessarily the presence of exclusive dealing. Eaton

argues that Plaintiffs‘ claims must fail because the LTAs were

not ―true‖ exclusive dealing arrangements in that they did not

contain express exclusivity requirements, nor did they cover

100% of the OEMs‘ purchases. Neither contention is

persuasive because de facto partial exclusive dealing

47

arrangements may, under certain circumstances, be actionable

under the antitrust laws.14

First, the law is clear that an express exclusivity

requirement is not necessary because de facto exclusive

dealing may be unlawful. Tampa Elec., 365 U.S. at 326;

Dentsply, 399 F.3d at 193; LePage’s, 324 F.3d at 157. For

example, in United States v. Dentsply International, Inc., we

held that transactions which were ―technically only a series of

independent sales‖ could form the basis for an exclusive

dealing claim because the large share of the market held by

the defendant and its conduct in excluding competitors,

―realistically made the arrangements . . . as effective as those

in written contracts.‖ 399 F.3d at 193 (citing Monsanto Co. v.

Spray-Rite Serv. Corp., 465 U.S. 752, 764 n.9 (1984)).

Likewise, in LePage’s, we held that bundled rebates and

discounts offered to major suppliers were designed to and did

14

Our dissenting colleague objects to the phrase ―de

facto partial exclusive dealing‖ as constituting a creative

neologism that ―distorts the English language‖ and

infrequently appears in a search of an online legal database.

Dissenting Op., Part II. ―De facto partial exclusive dealing‖

is certainly a neologism, but it also accurately represents that

an exclusive dealing claim does not require a contract that

imposes an express exclusivity obligation, Tampa Elec., 365

U.S. at 326; Dentsply, 399 F.3d at 193; LePage’s, 324 F.3d at

157, nor a contract that covers 100% of the buyer‘s needs,

Tampa Elec., 365 U.S. at 328 (―[T]he competition foreclosed

by the contract must be found to constitute a substantial share

of the relevant market.‖) (emphasis added).

48

operate as exclusive dealing arrangements, despite the lack of

any express exclusivity requirements. 324 F.3d at 157-58.

Here, there was sufficient evidence from which a jury

could infer that, although the LTAs did not expressly require

the OEMs to meet the market penetration targets, the targets

were as effective as mandatory purchase requirements. See

Tampa Elec., 365 U.S. at 326 (noting that ―even though a

contract does ‗not contain specific agreements not to use the

(goods) of a competitor,‘ if ‗the practical effect is to prevent

such use,‘ it comes within the condition of [Section 3] as to

exclusivity‖) (citing United Shoe Mach. Corp. v. United

States, 258 U.S. 451, 457 (1922)); Dentsply, 399 F.3d at 193-

94. Evidence presented at trial indicated that not only were

lower prices (rebates) conditioned on the OEMs meeting the

market-share targets, but so too was Eaton‘s continued

compliance with the LTAs. For example, Eaton‘s LTAs with

Freightliner, the largest OEM, and Volvo explicitly gave

Eaton the right to terminate the agreements if the market-

share targets were not met. And despite the fact that Eaton

did not actually terminate the agreements on the rare occasion

when an OEM failed to meet its target, the OEMs believed

that it might.15

Critically, due to Eaton‘s position as the

dominant supplier, no OEM could satisfy customer demand

without at least some Eaton products, and therefore no OEM

could afford to lose Eaton as a supplier. Accordingly, we

agree with the District Court that a jury could have concluded

15

In 2003, for example, PACCAR failed to meet its

market penetration target, and although Eaton withdrew all

contractual savings, it did not terminate the agreement.

49

that, under the circumstances, the market penetration targets

were as effective as express purchase requirements ―because

no risk averse business would jeopardize its relationship with

the largest manufacturer of transmissions in the market.‖ ZF

Meritor, 769 F. Supp. 2d at 692.

Second, an agreement does not need to be 100%

exclusive in order to meet the legal requirements of exclusive

dealing. We acknowledge that ―partial‖ exclusive dealing is

rarely a valid antitrust theory. See Barr Labs., 978 F.2d at

110 n.24 (―An agreement affecting less than all purchases

does not amount to true exclusive dealing.‖) (citation

omitted); Concord Boat, 207 F.3d at 1044, 1062-63 (noting

that the defendant‘s discount program, which conditioned

incremental discounts on customers purchasing 60-80% of

their needs from the defendant, did not constitute exclusive

dealing because customers were not required to purchase all

of their requirements from the defendant, and in fact, could

purchase up to 40% of their requirements from other sellers

without foregoing the discounts); Magnus Petroleum Co. v.

Skelly Oil Co., 599 F.2d 196, 200-01 (7th Cir. 1979) (holding

that contract requiring buyer to purchase a fixed quantity of

goods that amounted to roughly 60-80% of its needs was not

unlawful ―[b]ecause the agreements contained no exclusive

dealing clause and did not require [the buyer] to purchase any

amounts of [the defendant‘s product] that even approached

[its] requirements‖) (citations omitted). Partial exclusive

dealing agreements such as partial requirements contracts and

contracts stipulating a fixed dollar or quantity amount are

generally lawful because market foreclosure is only partial,

and competing sellers are not prevented from selling to the

50

buyer. See Concord Boat, 207 F.3d at 1062-63; Magnus

Petroleum, 599 F.2d at 200-01.

However, we decline to adopt Eaton‘s view that a

requirements contract covering less than 100% of the buyer‘s

needs can never be an unlawful exclusive dealing

arrangement. See Eastman Kodak, 504 U.S. at 466-67

(―Legal presumptions that rest on formalistic distinctions

rather than actual market realities are generally disfavored in

antitrust law.‖). ―Antitrust analysis must always be attuned to

the particular structure and circumstances of the industry at

issue.‖ Verizon Commc’ns, 540 U.S. at 411. Therefore, just

as ―total foreclosure‖ is not required for an exclusive dealing

arrangement to be unlawful, nor is complete exclusivity

required with each customer. See Dentsply, 399 F.3d at 191.

The legality of such an arrangement ultimately depends on

whether the agreement foreclosed a substantial share of the

relevant market such that competition was harmed. Tampa

Elec., 365 U.S. at 326-28.

In our case, although the market-share targets covered

less than 100% of the OEMs‘ needs, a jury could nevertheless

find that the LTAs unlawfully foreclosed competition in a

substantial share of the HD transmissions market. See id.

There are only four direct purchasers of HD transmissions in

North America, and Eaton, long the dominant supplier in the

industry, entered into long-term agreements with each of

them. Compare Concord Boat, 207 F.3d at 1044 (noting the

defendant was the market leader, but there were at least ten

other competing manufacturers). Each LTA imposed a

market-penetration target of roughly 90% (with the exception

of Volvo, which manufactured some of its own transmissions

51

for use in its own trucks), which we explained above, could

be viewed as a requirement that the OEM purchase that

percentage of its requirements from Eaton. Although no

agreement was completely exclusive, the foreclosure that

resulted was no different than it would be in a market with

many customers where a dominant supplier enters into

complete exclusive dealing arrangements with 90% of the

customer base. Under such circumstances, the lack of

complete exclusivity in each contract does not preclude

Plaintiffs‘ de facto exclusive dealing claim.16

2. Market Conditions in HD Transmissions Market

Exclusive dealing will generally only be unlawful

where the market is highly concentrated, the defendant

possesses significant market power, and there is some

element of coercion present. See Tampa Elec., 365 U.S. at

329; Race Tires, 614 F.3d at 77-78; LePage’s, 324 F.3d at

159. For example, if the defendant occupies a dominant

position in the market, its exclusive dealing arrangements

invariably have the power to exclude rivals. Tampa Elec.,

365 U.S. at 329; Dentsply, 399 F.3d at 187. Here, the jury

16

Additionally, the District Court instructed the jury

that Plaintiffs did not allege ―actual‖ exclusive dealing, but

instead alleged that ―the long-term supply contracts with

defendant, in effect, committed the OEMs to purchase at least

a substantial share of their transmissions from defendant.‖

The District Court defined such an arrangement as a ―‗de

facto‘ exclusive dealing contract.‖ Eaton does not challenge

this instruction on appeal.

52

found that Eaton possessed monopoly power in the HD

transmissions market, and Eaton does not contest that finding

on appeal.

A hard look at the nature of the market in which the

parties compete is equally important. Tampa Elec., 365 U.S.

at 329. An exclusive dealing arrangement is most likely to

present a threat to competition in a situation in which the

market is highly concentrated, such that long-term contracts

operate to ―foreclose so large a percentage of the available

supply or outlets that entry‖ or continued operation in ―the

concentrated market is unreasonably constricted.‖ Race

Tires, 614 F.3d at 76 (quoting E. Food Servs., 357 F.3d at 8);

see Dentsply, 399 F.3d at 184 (noting that the relevant market

was ―marked by a low or no-growth potential‖ and the

defendant had long dominated the industry with a 75-80%

market share). Here, the HD transmissions market had long

been dominated by Eaton. Except for Meritor‘s production of

manual transmissions in the 1990s and the ZF Meritor joint

venture, no significant external supplier has entered the

market for the last twenty years. A jury could certainly infer

that Eaton‘s dominance over the OEMs created a barrier to

entry that any potential rival manufacturer would have to

confront. See Concord Boat, 207 F.3d at 1059 (―If entry

barriers to new firms are not significant, it may be difficult

for even a monopoly company to control prices through some

type of exclusive dealing arrangement because a new firm or

firms easily can enter the market to challenge it [but] [i]f

there are significant entry barriers . . . , a potential competitor

would have difficulty entering.‖) (citations omitted). The

record shows that the barriers to entry in the North American

53

HD transmission market are especially high: HD

transmissions are expensive to produce; transmissions

developed for other geographic markets must be substantially

modified for the North American market; and all HD

transmission sales must pass through the highly concentrated

intermediate market in which the OEMs operate. Eaton‘s

theory that ZF Meritor or any new HD transmissions

manufacturer would be able to ―steal‖ an Eaton customer by

offering a superior product at a lower price ―simply has not

proved to be realistic.‖ Dentsply, 399 F.3d at 194 (citation

omitted); compare NicSand, 507 F.3d at 454 (in finding

exclusive dealing arrangements lawful, noting that the

plaintiff was the market leader, and lost business due to a new

entrant‘s competition). ―The paltry penetration in the market

by competitors over the years has been a refutation of

[Eaton‘s] theory by tangible and measurable results in the real

world.‖ Dentsply, 399 F.3d at 194; see Microsoft, 253 F.3d at

55 (noting importance of significant barriers to entry in

maintaining monopoly power, in spite of the plaintiffs‘ self-

imposed problems).

Although we generally ―assume that a customer will

make [its] decision only on the merits,‖ Santana Prods., Inc.

v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 133 (3d Cir.

2005) (quoting Stearns Airport Equip. Co. v. FMC Corp., 170

F.3d 518, 524-25 (5th Cir. 1999)), a monopolist may use its

power to break the competitive mechanism and deprive

customers of the ability to make a meaningful choice. See

Race Tires, 614 F.3d at 77 (noting that coercion ―has played a

key, if sometimes unexplored, role‖ in antitrust law);

Dentsply, 399 F.3d at 184 (observing that the defendant

54

―imposed‖ an exclusivity policy on its customers); LePage’s,

324 F.3d at 159 (explaining that because 3M occupied a

dominant position in several different product markets, it was

able to effectively force customers in the ―private label‖ tape

market to deal with 3M exclusively, despite the plaintiff‘s

competitiveness in that market). A highly concentrated

market, in which there is one (or a few) dominant supplier(s),

creates the possibility for such coercion. And here, there was

evidence that Eaton leveraged its position as a supplier of

necessary products to coerce the OEMs into entering into the

LTAs. Plaintiffs presented testimony from OEM officials

that many of the terms of the LTAs were unfavorable to the

OEMs and their customers, but that the OEMs agreed to such

terms because without Eaton‘s transmissions, the OEMs

would be unable to satisfy customer demand.17

17

Eaton emphasizes that the OEMs are multi-billion

dollar companies (or at least owned by multi-billion dollar

parent companies), and therefore claims that the OEMs

dictated terms to Eaton – not the other way around.

Significantly, in United States v. Dentsply International, Inc.,

we found coercion even though the relationship between the

customers and the defendant was not totally one-sided. 399

F.3d 181, 185 (3d Cir. 2005) (noting that the defendant

considered bypassing dealers and selling directly to customers

but abandoned that strategy out of fear that dealers might

retaliate by refusing to buy other products manufactured by

the defendant). Moreover, even assuming that the evidence

could support a conclusion that the OEMs had more power in

the relationship, the fact that two reasonable conclusions

55

Accordingly, this case involves precisely the

combination of factors that we explained would be present in

the rare case in which exclusive dealing would pose a threat

to competition. See Race Tires, 614 F.3d at 76.

3. Sufficiency of the Evidence: Anticompetitive Conduct

We turn now to a discussion of whether there was

sufficient evidence for a jury to conclude that Eaton engaged

in anticompetitive conduct. Our inquiry in a sufficiency of

the evidence challenge is limited to determining whether,

―viewing the evidence in the light most favorable to the

[winner at trial] and giving it the advantage of every fair and

reasonable inference, there is insufficient evidence from

which a jury reasonably could find liability.‖ Lightning Lube,

Inc. v. Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993)

(citation omitted). Eaton argues that even under the

extraordinarily deferential standard, there was insufficient

evidence for a reasonable jury to conclude that Eaton engaged

in conduct that harmed competition. Guided by the principles

set forth in Section III.A.1, supra, we disagree.

i. Extent of Foreclosure

First, the extent of the market foreclosure in this case

was significant. ―The share of the market foreclosed is

important because, for the contract to have an adverse effect

upon competition, ‗the opportunities for other[s] . . . to enter

could be drawn from the evidence does not make the jury‘s

adoption of Plaintiffs‘ view unreasonable.

56

into or remain in that market must be significantly limited.‘‖

Microsoft, 253 F.3d at 69 (citing Tampa Elec., 365 U.S. at

328). Substantial foreclosure allows the dominant firm to

prevent potential rivals from ever reaching ―the critical level

necessary‖ to pose a real threat to the defendant‘s business.

Dentsply, 339 F.3d at 191. Here, Eaton entered into long-

term agreements with every direct purchaser in the market,

and under each agreement, imposed what could be viewed as

mandatory purchase requirements of at least 80%, and up to

97.5%. The OEMs generally met these targets, which, as

Plaintiffs‘ expert testified, resulted in approximately 15% of

the market remaining open to Eaton‘s competitors by 2003.18

See LePage’s, 324 F.3d at 159 (noting that foreclosure of

40% to 50% is usually required to establish an exclusive

18

ZF Meritor‘s expert, Dr. David DeRamus, testified

at trial that Eaton‘s market share was consistently above 80%

from 2000 through 2007. Later in his testimony, DeRamus

concluded that Eaton‘s increased market share from 2000 to

2007 was the result of the LTAs. Furthermore, DeRamus

showed that ZF Meritor‘s market share percentages in the

linehaul transmissions market (i.e., the only portion of the

overall HD transmissions market in which ZF Meritor

competed), dropped from 32% to 24% between 2000 and

2002, and dropped even further from 24% to 12% between

2002 and 2003, before ultimately falling to 0% in 2007.

DeRamus concluded that the loss of ZF Meritor‘s linehaul

transmissions market share and its eventual exit from the

market were due to Eaton‘s conduct and, specifically, the

LTAs.

57

dealing violation under Section 1 of the Sherman Act (citing

Microsoft, 253 F.3d at 70)). From 2000 through 2003,

Plaintiffs‘ overall market share ranged from 8-14%, and by

2005, Plaintiffs‘ market share had dropped to 4%.

ii. Duration of LTAs

Second, the LTAs were not short-term agreements,

which would present little threat to competition. See, e.g.,

Christofferson Dairy, Inc. v. MMM Sales, Inc., 849 F.2d

1168, 1173 (9th Cir. 1988) (upholding exclusive dealing

arrangement of ―short duration‖); Roland Mach. Co. v.

Dresser Indus., Inc., 749 F.2d 380, 395 (7th Cir. 1984)

(noting that exclusive dealing contracts of less than one year

are presumptively lawful); Barry Wright, 724 F.2d at 237

(citing two-year term in upholding requirements contract).

Rather, each LTA was for a term of at least five years, and the

PACCAR LTA was for a seven-year term.19

See FTC v.

Motion Picture Adver. Serv. Co., 344 U.S. 392, 393-96

(1953) (upholding contracts of one year or less, but

condemning contract terms ranging from two to five years).

Although long exclusive dealing contracts are not per se

unlawful, ―[t]he significance of any particular contract

duration is a function of both the number of such contracts

and market share covered by the exclusive-dealing contracts.‖

Hovenkamp ¶ 1802g, at 98. Here, Eaton entered into long-

term contracts with every direct purchaser in the market,

which locked up over 85% of the market for at least five

19

Eaton and Freightliner revised their original LTA to

increase the duration to ten years.

58

years. Although long-term agreements had previously been

used in the HD transmissions industry, it was unprecedented

for a supplier to enter into contracts of such duration with the

entire customer base.

Eaton acknowledges, as it must, the unprecedented

length of the LTAs, but maintains that the LTAs were not

anticompetitive because they were easily terminable. See,

e.g., PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 111 (2d

Cir. 2002) (finding challenged contracts lawful, in part,

because they were terminable at will); Omega Envtl., 127

F.3d at 1164 (noting easy terminability of agreements). Each

LTA included a ―competitiveness‖ clause, which permitted

the OEM to purchase from another supplier or terminate the

agreement if another supplier offered a better product or a

lower price. However, Plaintiffs presented evidence that any

language giving OEMs the right to terminate the agreements

was essentially meaningless because Eaton had assured that

there would be no other supplier that could fulfill the OEMs‘

needs or offer a lower price. Thus, a jury could very well

conclude that ―in spite of the legal ease with which the

relationship c[ould] be terminated,‖ the OEMs had a strong

economic incentive to adhere to the terms of the LTAs, and

therefore were not free to walk away from the agreements and

purchase products from the supplier of their choice.

Dentsply, 399 F.3d at 194.

iii. Additional Anticompetitive Provisions in LTAs

Third, the LTAs were replete with provisions that a

reasonable jury could find anticompetitive. To begin, a jury

could have found that the data book provisions were

59

anticompetitive in that they limited the ability of ZF Meritor

to effectively market its products, and limited the ability of

truck buyers to choose from a full menu of available

transmissions. See id. (discussing anticompetitive effect of

limitations on customer choice). Eaton downplays the

significance of the data book provisions, arguing that truck

buyers always remained free to request unlisted

transmissions, and ZF Meritor remained free to market

directly to truck buyers. However, the mere existence of

potential alternative avenues of distribution, without ―an

assessment of their overall significance to the market,‖ is

insufficient to demonstrate that Plaintiffs‘ opportunities to

compete were not foreclosed. Id. at 196. An OEM‘s data

book was the ―most important tool‖ that any buyer selecting

component parts for a truck would use. If a product was not

listed in a data book, it was ―a disaster for the supplier.‖

Although truck buyers could request unpublished

components, doing so involved additional transaction costs,

and in practice, meant that truck buyers were far more likely

to select a product listed in the data book. See id. at 193

(explaining that the key question was not whether alternative

distribution methods allowed a competitor to ―survive‖ but

whether the alternative methods would ―pose[] a real threat‖

to the defendant‘s monopoly) (citing Microsoft, 253 F.3d at

71). Additionally, prior to the LTAs, it was not common

practice for one supplier to be given exclusive data book

listing. Historically, data books had included all product

offerings, including Meritor transmissions, and the OEMs

acknowledged that removing ZF Meritor products, especially

FreedomLine, from the data books was ―from a customer

perspective,‖ the wrong thing to do so because they were

60

―good product[s] with considerable demand in the

marketplace.‖

A jury could also have found that the ―preferential

pricing‖ provisions in the LTAs were anticompetitive.

Although it was ―common‖ for price savings to be passed

down to truck buyers in the form of lower prices, and there

are indications that at least some of the savings from Eaton

transmissions were indeed passed down, there is also

evidence that the preferential prices were achieved by

artificially increasing the prices of Plaintiffs‘ products.

Additionally, the jury could have determined that the

―competitiveness‖ clauses were of little practical import

because Eaton‘s conduct ensured that no rival would be able

to offer a comparable deal. There was also evidence that the

competitiveness clauses were met with stiff resistance by

Eaton.

iv. Anticompetitive Effects vs. Procompetitive Effects

Finally, the only procompetitive justification offered

by Eaton on appeal is that the LTAs were crafted to meet

customer demand to reduce prices, as well as engineering and

support costs. See Barr Labs., 978 F.2d at 111 (explaining

that courts must ―evaluate the restrictiveness and the

economic usefulness of the challenged practice in relation to

the business factors extant in the market‖) (citations omitted).

In response to the economic downturn in the heavy-duty

trucking industry in the late 1990s and early 2000s, each

OEM sought to negotiate lower prices, and some sought to

reduce the number of suppliers. During this time, oversupply

61

was a problem, as were low truck prices, and an

unavailability of drivers. It appears that Eaton responded

well to the downturn; despite persistent quality control

problems and a relatively late introduction of two-pedal

automated mechanical transmissions, the company cut costs

and increased market share.

However, no OEM ever asked Eaton to be a sole

supplier, and there was considerable testimony from OEM

officials that it was in an OEM‘s interest to have multiple

suppliers. Although long-term agreements offering market-

share or volume discounts had been used in the industry in the

past (for transmissions and for other truck components), OEM

executives consistently testified that Eaton‘s new LTAs

represented a substantial departure from past practice. For

example, the longest supply agreements Freightliner and

Volvo had ever signed previously were for two-year terms.

Likewise, OEM officials testified that the provisions in the

LTAs requiring exclusive data book listing and ―preferential

pricing‖ were not common. Critically, there was considerable

evidence from which a jury could infer that the primary

purpose of the LTAs was not to meet customer demand, but

to take preemptive steps to block potential competition from

the new ZF Meritor joint venture. Eaton devised the

unprecedented LTAs only after Meritor formed the joint

venture with ZF AG, which Eaton viewed as a ―serious

competitor.‖ Eaton feared that the ZF Meritor joint venture

would put Eaton‘s ―[North American] position at risk‖ by

introducing a new product (FreedomLine) for which there

was significant customer demand, but for which Eaton did not

produce a comparable alternative.

62

In sum, the LTAs included numerous provisions

raising anticompetitive concerns and there was evidence that

Eaton sought to aggressively enforce the agreements, even

when OEMs voiced objections.20

Accordingly, we hold that

there was more than sufficient evidence for a jury to conclude

that the cumulative effect of Eaton‘s conduct was to adversely

affect competition.21

20

Judge Greenberg, in dissent, objects that our rule of

reason analysis fails to consider that Eaton‘s prices were

above cost. Dissenting Op., Part II. However, contrary to

this objection, and even though ZF Meritor does not contend

that Eaton‘s prices operated as an exclusionary tool, we do

not view Eaton‘s prices as irrelevant to the rule of reason

analysis. Rather than analyzing the alleged exclusionary

provisions in a vacuum, we analyze these provisions in the

larger context of the LTAs as a whole, and we recognize that

Eaton maintained above-cost prices. We conclude that ZF

Meritor presented sufficient evidence for the jury to find that,

even though not every provision was exclusionary, the LTAs

as a whole functioned as exclusive dealing agreements that

adversely affected competition.

21 It is worth noting that despite Eaton‘s contention

that Plaintiffs‘ higher prices and quality problems led to their

decline in market share, the OEMs felt differently. In 2002, a

Freightliner executive wrote: ―[t]his is a dangerous situation.

We have already killed Meritor‘s transmission business. It is

just a matter of time before they close their doors.‖ Likewise,

a 2006 Volvo presentation states: ―With all its OEM

customers, Eaton has established long term supply contracts

63

4. Sufficiency of the Evidence: Antitrust Injury

Having concluded that there was sufficient evidence

from which a jury could determine that the LTAs functioned

as unlawful exclusive dealing agreements, we have no

difficulty concluding that there was likewise sufficient

evidence that Plaintiffs suffered antitrust injury. See Atl.

Richfield, 495 U.S. at 344 (explaining that a plaintiff suffers

antitrust injury if its injury ―stems from a competition-

reducing aspect or effect of the defendant‘s behavior‖).

Eaton‘s conduct unlawfully foreclosed a substantial share of

the HD transmissions market, which would otherwise have

been available for rivals, including Plaintiffs. ZF Meritor

exited the market in 2003, followed by Meritor in 2006,

because they could not maintain high enough market shares to

remain viable. A jury could certainly conclude that Plaintiffs‘

inability to grow was a direct result of Eaton‘s exclusionary

conduct.

C. Expert Testimony

1. Expert Testimony on Liability

Eaton raises two challenges to the District Court‘s

decision to admit DeRamus‘s testimony on liability. First,

Eaton argues that DeRamus failed to employ any recognized

or reliable economic test for determining whether Eaton‘s

. . . [which] ha[ve] led to . . . Eaton‘s only North American

competitor, Meritor, [being] gradually marginalized to its

current market position with a 10% market share.‖

64

conduct harmed competition and caused antitrust injury.

Second, Eaton contends that DeRamus‘s opinion was

contradicted by the facts. We disagree with both

contentions.22

Federal Rule of Evidence 702 provides:

A witness who is qualified as an expert by

knowledge, skill, experience, training, or

education may testify in the form of an opinion

or otherwise if: (a) the expert‘s scientific,

technical, or other specialized knowledge will

help the trier of fact to understand the evidence

or to determine a fact in issue; (b) the testimony

is based on sufficient facts or data; (c) the

testimony is the product of reliable principles

and methods; and (d) the expert has reliably

applied the principles and methods to the facts

of the case.

Under Rule 702, the district court acts as a ―gatekeeper‖ to

ensure that ―the expert‘s opinion [is] based on the methods

and procedures of science rather than on subjective belief or

unsupported speculation.‖ Calhoun v. Yamaha Motor Corp.,

U.S.A., 350 F.3d 316, 321 (3d Cir. 2003) (quoting In re Paoli

R.R. Yard PCB Litig. (Paoli II), 35 F.3d 717, 741 (3d Cir.

22

Eaton also argues that DeRamus‘s testimony was

contrary to law because he did not employ a price-cost test.

However, as we explained above, no price-cost test was

required in this case.

65

1994)). Here, as the District Court noted, DeRamus relied on

the exclusionary nature of the LTAs to form his opinion. He

defined the relevant market, determined whether Eaton has

monopoly power, and engaged in an analysis of Eaton‘s

conduct, taking into account market conditions and the extent

of the exclusive dealing. He examined the effect of the LTAs

on prices and consumer choice, and considered whether

foreclosure of the market could be attributed to factors other

than the LTAs, such as market conditions or quality issues

with Plaintiffs‘ products. We find no error in the District

Court‘s acceptance of DeRamus‘s methodologies as reliable

under Rule 702. See LePage’s, 324 F.3d at 154-64 (analyzing

exclusive dealing by looking to many of the same factors

considered by DeRamus).

Eaton also argues that DeRamus‘s opinion was

contradicted by the facts. ―When an expert opinion is not

supported by sufficient facts to validate it in the eyes of the

law, or when indisputable record facts contradict or otherwise

render the opinion unreasonable, it cannot support a jury‘s

verdict.‖ Brooke Grp., 509 U.S. at 242; Phila. Newspapers,

51 F.3d at 1198. In an antitrust case, an expert opinion

generally must ―incorporate all aspects of the economic

reality‖ of the relevant market. Concord Boat, 207 F.3d at

1057. Here, the District Court properly rejected Eaton‘s

argument that DeRamus‘s testimony should have been

excluded on the basis that it was contradicted by other facts.

Eaton‘s argument on this point really amounts to nothing

more than a complaint that DeRamus did not adopt Eaton‘s

view of the case. The District Court correctly noted that,

although some of DeRamus‘s testimony may have been

66

contradicted by other evidence, including the testimony of

Eaton‘s expert, the existence of conflicting evidence was not

a basis on which to exclude DeRamus‘s testimony. The

respective credibility of Plaintiffs‘ and Eaton‘s experts was a

question for the jury to decide. LePage’s, 324 F.3d at 165.

DeRamus was extensively cross-examined and Eaton

presented testimony from its own expert, who opined that the

LTAs had no anticompetitive effect. In the end, the jury

apparently found DeRamus to be more credible. ―[Eaton]‘s

disappointment as to the jury‘s finding of credibility does not

constitute an abuse of discretion by the District Court in

allowing [DeRamus‘s] testimony.‖ Id. at 166.

2. Expert Testimony on Damages

In their cross-appeal, Plaintiffs argue that the District

Court erred in excluding DeRamus‘s testimony on the issue

of damages. The core of DeRamus‘s damages analysis was

one page (titled ―Five Year Product Line Profit and Loss‖) of

ZF Meritor‘s Revised Strategic Business Plan (―SBP‖) for

fiscal years 2002 through 2005, which was presented to ZF

Meritor‘s Board of Directors in November 2000.23

The

District Court determined that, although DeRamus used

methodologies regularly employed by economists, his opinion

nevertheless failed the reliability requirements of Daubert and

the Federal Rules of Evidence because the underlying data

23

The SBP contained a five-year forecast of profit and

loss estimates based on estimated unit sales, unit prices,

manufacturing costs, operating expenses, and other

considerations.

67

was not sufficiently reliable. The District Court

acknowledged that experts often rely on business plans in

forming damages estimates, but concluded that DeRamus‘s

reliance on the SBP in this case was improper because he did

not know either the qualifications of the individuals who

prepared the SBP estimates or the assumptions upon which

the estimates were based. Plaintiffs filed a motion for

clarification, which asked the District Court to allow

DeRamus to testify based on his existing expert report to

damages estimates independent of the SBP, or, in the

alternative, to allow him to amend his report to include the

alternate damages estimates. The District Court did not

resolve the damages issue at that time, and bifurcated the

case. After the trial on liability, Plaintiffs supplemented their

pre-trial motion for clarification, adding several new

arguments based on developments at trial, and renewing their

request that DeRamus be allowed to testify based on alternate

calculations. The District Court denied Plaintiffs‘ motion and

awarded $0 in damages.

Our inquiry on appeal is two-fold. Initially, we must

determine whether the District Court erred in excluding the

expert opinion of DeRamus on the basis that it was not

sufficiently reliable. Then, we must consider whether the

District Court abused its discretion in denying Plaintiffs‘

request to allow DeRamus to testify to alternative damages

calculations. We will address these issues in turn.

i. DeRamus‘s original damages calculations

First, we will consider Plaintiffs‘ contention that the

District Court erred in determining that DeRamus‘s damages

68

opinion was not sufficiently reliable. Federal Rule of

Evidence 702, as amended in 2000 to incorporate the

standards set forth in Daubert, imposes an obligation upon a

district court to ensure that expert testimony is not only

relevant, but reliable. Fed. R. Evid. 702; Paoli II, 35 F.3d at

744. As we have made clear, ―the reliability analysis

[required by Daubert] applies to all aspects of an expert‘s

testimony: the methodology, the facts underlying the expert‘s

opinion, [and] the link between the facts and the conclusion.‖

Heller v. Shaw Indus., Inc., 167 F.3d 146, 155 (3d Cir. 1999);

see also id. (―Not only must each stage of the expert‘s

testimony be reliable, but each stage must be evaluated

practically and flexibly without bright-line exclusionary (or

inclusionary) rules.‖). As we explain below, the District

Court did not abuse its discretion by finding that DeRamus‘s

damages estimate, which was based heavily on the SPB

projections, bore insufficient indicia of reliability to be

submitted to a jury.

To determine the damages suffered by Plaintiffs as a

result of Eaton‘s anticompetitive conduct, DeRamus

conducted a two-part analysis. He computed Plaintiffs‘ lost

profits for the period between 2000 and 2009, as well as the

lost enterprise value of Plaintiffs‘ HD transmissions business.

To calculate Plaintiffs‘ lost profits, DeRamus first estimated

the incremental revenues that Plaintiffs would have earned

―but for‖ Eaton‘s anticompetitive conduct, and then

subtracted from that figure the incremental cost that Plaintiffs

would have had to incur to achieve such incremental sales.

Ordinarily, such an approach would be appropriate

because ―an expert may construct a reasonable offense-free

69

world as a yardstick for measuring what, hypothetically,

would have happened ‗but for‘ the defendant‘s unlawful

activities.‖ LePage’s, 324 F.3d at 165 (citations omitted).

However, the District Court‘s primary criticism of

DeRamus‘s report was that he did not construct an offense-

free world based on actual financial data, but instead relied on

a one-page set of profit and volume projections without

knowing the circumstances under which such projections

were created or the assumptions on which they were based.

In some circumstances, an expert might be able to rely on the

estimates of others in constructing a hypothetical reality, but

to do so, the expert must explain why he relied on such

estimates and must demonstrate why he believed the

estimates were reliable. See Fed. R. Evid. 702; Daubert, 509

U.S. at 592-95; Paoli II, 35 F.3d at 748 n.18 (―Arguably,

[third-party estimates] that an expert relies on are not his

underlying data, but rather the data that went into the [third-

party estimates] in the first place are his underlying data.‖).

Plaintiffs contend that DeRamus‘s reliance on the SBP

estimates was appropriate because a company‘s internal

financial projections, like those in the SBP, are regularly and

reasonably relied upon by economists in formulating opinions

regarding a company‘s performance in an offense-free world.

Plaintiffs are certainly correct that ―internal projections for

future growth‖ often serve as legitimate bases for expert

opinions. See LePage’s, 324 F.3d at 165; Autowest, Inc. v.

Peugeot, Inc., 434 F.2d 556, 566 (2d Cir. 1970) (holding that

damages testimony was admissible because the financial

projections on which the testimony was based ―were the

product of deliberation by experienced businessmen charting

70

their future course‖). Businesses are generally well-informed

about the industries in which they operate, and have

incentives to develop accurate projections. As such, experts

frequently use a plaintiff‘s business plan to estimate the

plaintiff‘s expected profits in the absence of the defendant‘s

misconduct. See Litigation Services Handbook: The Role of

the Financial Expert 24:13 (4th ed. 2007). However, there is

no per se rule of inclusion where an expert relies on a

business plan; district courts must perform a case-by-case

inquiry to determine whether the expert‘s reliance on the

business plan in a given case is reasonable. See Heller, 167

F.3d at 155.

Here, the District Court concluded that the SBP could

not serve as a reliable basis for DeRamus‘s opinion because

he was unaware of the qualifications of the individuals who

prepared the document, or the assumptions on which the

estimates were based. Plaintiffs argue that these factual

findings are contradicted by the record. Admittedly, the

record indicates that DeRamus did not, as the District Court

suggested, blindly accept the SBP estimates without question.

DeRamus was aware that the SBP had been presented to ZF

Meritor‘s Board of Directors, and that it was revised several

times to ―address and resolve queries management had about

the reasonableness of the assumptions, projections, [and]

forecasts.‖ He also knew that the Board had relied on the

SBP in making business decisions. Moreover, ZF Meritor‘s

former president testified that he ―did not submit SBPs to

management for review unless [he] believed the projections,

forecasts, and assumptions therein to be reliable.‖

71

However, contrary to Plaintiffs‘ assertions, these

excerpts from the record do not contradict the District Court‘s

ultimate findings. The record amply supports the District

Court‘s concern that, although DeRamus was generally aware

of the circumstances under which the SBP was created and

the purposes for which it was used, he lacked critical

information that would be necessary for Eaton to effectively

cross-examine him. An expert‘s ―lack of familiarity with the

methods and the reasons underlying [someone else‘s]

projections virtually preclude[s] any assessment of the

validity of the projections through cross-examination.‖ TK-7

Corp. v. Estate of Barbouti, 993 F.2d 722, 732 (10th Cir.

1993); compare Autowest, 434 F.2d at 566 (holding that

projections of company officials were admissible where such

officials ―set out at length the bases from which they derived

their figures, and consequently, [the opposing party] was able

to cross-examine them vigorously‖). Here, DeRamus knew

that the SBP was presented to the Board by experienced

management professionals, but he did not know who initially

calculated the SBP figures. He did not know whether the

SBP projections were calculated by ZF Meritor management,

lower level employees at ZF Meritor, or came from some

outside source. Nor did DeRamus know the methodology

used to create the SBP or the assumptions on which the SBP‘s

price and volume estimates were based.24

24

As the District Court noted, it is especially important

for an expert to identify and justify the assumptions

underlying financial projections when dealing with a new

company. Here, although Meritor had been in the HD

72

Under the deferential abuse of discretion standard, we

will not disturb a district court‘s decision to exclude

testimony unless we are left with ―a definite and firm

conviction that the court below committed a clear error of

judgment.‖ In re TMI Litig., 193 F.3d 613, 666 (3d Cir.

1999) (citation omitted). Plaintiffs cannot clear that high

hurdle. Accordingly, we conclude that the District Court

acted within its discretion in determining that one page of

financial projections for a nascent company, the assumptions

underlying which were relatively unknown, did not provide

―good grounds,‖ Paoli II, 35 F.3d at 742 (quoting Daubert,

509 U.S. at 590), for DeRamus to generate his damages

estimate. Compare LePage’s, 324 F.3d at 165 (noting that

plaintiff‘s expert considered the defendant‘s internal

projections for growth, but also closely examined the market

conditions, including the past performance of competitors).

Plaintiffs raise two additional challenges to the District

Court‘s exclusion of DeRamus‘s testimony. First, Plaintiffs

contend that because the SBP was admitted into evidence at

trial, Rule 703 does not provide a basis for exclusion.

However, this argument is based on the flawed assumption

that the District Court excluded DeRamus‘s testimony under

Rule 703, rather than Rule 702. Plaintiffs assume that

because the District Court stated that ―DeRamus manipulated

the SBP using methodologies employed by economists,‖ ZF

Meritor, 646 F. Supp. 2d at 667, the District Court necessarily

transmissions industry for over a decade, ZF Meritor was

offering a brand new line of transmissions that had never

before been sold in the North American market.

73

concluded that Rule 702, which focuses on methodologies,

was satisfied. However, the District Court explicitly stated

that ―the fundamental query‖ was ―whether the [SBP]

estimates pass[ed] the reliability requirements of Rules 104,

702, and 703.‖ Id. Although it is not entirely clear from the

District Court‘s opinion which rule the District Court relied

upon in finding DeRamus‘s testimony inadmissible, we may

affirm evidentiary rulings on any ground supported by the

record, Hughes v. Long, 242 F.3d 121, 122 n.1 (3d Cir. 2001),

and we conclude that DeRamus‘s opinion was properly

excluded because it failed the reliability requirements of Rule

702.25

Plaintiffs‘ suggestion that the reasonableness of an

expert‘s reliance on facts or data to form his opinion is

somehow an inappropriate inquiry under Rule 702 results

25

We base our affirmance of the District Court‘s

decision entirely on the fact that DeRamus‘s opinion failed

Rule 702, and do not decide whether Rule 703 provides an

additional basis for exclusion. We note, however, that

Plaintiffs‘ argument that Rule 703 somehow constrains a

district court‘s ability to conduct an assessment of reliability

under Rule 702 is misplaced. After all, a piece of evidence

may be relevant for one purpose, and thus admissible at trial,

but not be the type of information that can form the basis of a

reliable expert opinion. As the District Court stated, ―the fact

that [a piece of evidence] [i]s part of [the] plaintiffs‘ ‗story‘

does not mean, ipso facto,‖ that an expert opinion relying on

such evidence is admissible. ZF Meritor LLC v. Eaton Corp.,

800 F. Supp. 2d 633, 637 (D. Del. 2011).

74

from an unduly myopic interpretation of Rule 702 and ignores

the mandate of Daubert that the district court must act as a

gatekeeper. See Daubert, 509 U.S. at 589; Heller, 167 F.3d at

153 (―While ‗the focus, of course, must be solely on

principles and methodology, not on the conclusions that they

generate,‘ a district court must examine the expert‘s

conclusions in order to determine whether they could reliably

flow from the facts known to the expert and the methodology

used.‖) (emphasis added) (quoting Daubert, 509 U.S. at 595).

Where proffered expert testimony‘s ―factual basis, data,

principles, methods, or their application are called sufficiently

into question, . . . the trial judge must determine whether the

testimony has ‗a reliable basis in the knowledge and

experience of the relevant discipline.‘‖ Kumho Tire Co. v.

Carmichael, 526 U.S. 137, 149 (1999) (quoting Daubert, 509

U.S. at 592). A district court‘s inquiry under Rule 702 is ―a

flexible one‖ and must be guided by the facts of the case.

Daubert, 509 U.S. at 591, 594. Here, the District Court‘s

analysis fell squarely within its flexible gatekeeping function

under Daubert and Rule 702. See Kumho Tire Co. 526 U.S.

at 149; Paoli II, 35 F.3d at 748 n.18; see also Elcock, 233

F.3d at 754 (explaining that an expert‘s testimony regarding

damages must be based on a sufficient factual foundation);

Tyger Constr. Co. v. Pensacola Constr. Co., 29 F.3d 137, 142

(4th Cir. 1994) (―An expert‘s opinion should be excluded

when it is based on assumptions which are speculative and

not supported by the record.‖).

Second, Plaintiffs argue that the District Court did not

provide fair notice that it intended to exclude DeRamus‘s

testimony under Federal Rule of Evidence 703. Again, this

75

argument rests on the flawed assumption that the District

Court relied solely on Rule 703. However, even assuming the

District Court mistakenly believed that its Rule 702 reliability

analysis actually fell under Rule 703, Plaintiffs‘ notice

argument would still be meritless. A district court must give

the parties ―an adequate opportunity to be heard on

evidentiary issues.‖ In re Paoli R.R. Yard PCB Litig. (Paoli

I), 916 F.2d 829, 854 (3d Cir. 1990). Here, there was

extensive briefing regarding DeRamus‘s damages opinion,

much of which focused on Eaton‘s argument that DeRamus‘s

reliance on the SBP was improper. The District Court held

not one, but two in limine hearings, in which DeRamus

testified for several hours. Compare id. at 854-55 (holding

that the district court did not give the plaintiffs an adequate

opportunity to be heard where it failed to conduct an in limine

hearing and denied oral argument on the evidentiary issues).

As such, Plaintiffs were well aware of, and had ample

opportunity to be heard on, the question of whether

DeRamus‘s reliance on the SBP rendered his testimony

inadmissible.

ii. Alternate damages calculations

The District Court‘s opinion excluding DeRamus‘s

damages testimony focused exclusively on DeRamus‘s

damages estimates based on the SBP projections regarding

ZF Meritor‘s market share and profit margin. However, his

expert report also set forth market-share estimates based on

an econometric model. The econometric model did not

consider the SBP, but instead used economic variables, such

as the number of heavy-duty trucks built and sold in the North

American market, an index of consumer confidence in the

76

United States, the average wholesale price of oil in the United

States, and interest rates. The model also considered ZF

Meritor‘s market share from the previous month ―in order to

capture market dynamics.‖

To reach his ultimate damages estimate, DeRamus

averaged several damages calculations, each of which used a

different combination of inputs for market share and profit

margin. Following the District Court‘s order excluding

DeRamus‘s testimony due to his reliance on the SBP,

Plaintiffs filed a motion for clarification, asking the District

Court to allow DeRamus to calculate damages using the same

methodologies from his expert report, but using data

independent of the SBP. Specifically, Plaintiffs proposed

several revisions to DeRamus‘s damages estimate. First,

Plaintiffs indicated that DeRamus could revise his ―Eaton

Operating Profit Method,‖ which used as principal inputs the

SBP estimates for market share and Eaton‘s actual operating

profits for profit margin. Plaintiffs stated that DeRamus had

recalculated lost profits using the same methodology, but

replacing the market-share data from the SBP with market-

share data from his econometric model. Second, Plaintiffs

explained that DeRamus could similarly revise his

―Econometric Method‖ of calculating lost profits, which used

the econometric model for market share, and data from the

SBP for profit margin. He could use the same methodology

and replace the profit margin data from the SBP with profit

77

margin data from Plaintiffs‘ actual sales data from 1996

through 2000.26

Noting that all of the data necessary for DeRamus‘s

recalculations were already in the expert report, Plaintiffs

requested that DeRamus be able to testify to the alternate

calculations using the existing expert report. Allowing

DeRamus to testify to alternate damages numbers without

amending his expert report would have left Eaton without

advance notice of the new calculations, and thus would have

been improper. As such, the District Court did not err in

ruling that DeRamus could not testify to new calculations

based on the existing expert report. However, the District

Court‘s refusal to allow DeRamus to amend his expert report

presents a much more difficult question, one that we will

explore in depth.

Before beginning our analysis, it is necessary to

provide some context regarding the procedural history

because the way in which the damages issue was handled by

the District Court is significant to our determination that the

District Court abused its discretion. After the District Court

granted Eaton‘s motion to exclude DeRamus‘s damages

testimony, it granted leave for Plaintiffs to file a motion for

clarification to identify damages calculations in DeRamus‘s

expert report that were not based on the SBP. On September

26

Although the District Court did not address

DeRamus‘s lost enterprise value calculations, Plaintiffs

indicated in their motion for clarification that DeRamus could

make similar revisions to those calculations.

78

9, 2009, ten days before trial was set to begin, Plaintiffs filed

the motion, acknowledging that new calculations would be

required, but submitting that all of the necessary data was

already in the report. The next day, the District Court held a

pretrial conference, in which it considered Plaintiffs‘ motion,

and determined that it had two options: to ―basically punt‖ on

the damages issue and bifurcate the case, or to allow

Plaintiffs‘ new damages theory to go forward and allow Eaton

to depose DeRamus to examine his new theories. The

District Court concluded that the ―cleanest‖ option was to

defer the damages issue, bifurcate, and proceed to trial on

liability. That way, the District Court stated, the damages

issue would only need to be resolved if ―the jury c[ame] back

with a plaintiffs‘ verdict, which [was] [up]held on appeal.‖ In

opting to defer a decision on damages, the District Court

noted that it ―did not . . . at the moment, have the time to

parse [DeRamus‘s report] as carefully‖ as would be necessary

to satisfactorily address the parties‘ arguments regarding

damages.

The jury delivered its verdict on liability on October 8,

2009, and the District Court entered judgment in favor of

Plaintiffs on October 14. Two days later, Plaintiffs requested

that the District Court set a trial on damages. Eaton opposed

Plaintiffs‘ request, asserting that the judgment on liability was

a final appealable decision. Although the District Court

apparently agreed with Eaton initially, stating that it ―d[id]

not intend to address damages until liability has been finally

resolved by the Third Circuit,‖ the District Court

subsequently issued an amended judgment, which stated that

because damages had not been resolved, there was no final

79

appealable order under Federal Rule of Civil Procedure 54(b).

On November 3, 2009, Eaton filed its renewed motion for

judgment as a matter of law or a new trial. The District Court

did not rule on the motion until March 2011.27

Following the District Court‘s denial of Eaton‘s

motion, Plaintiffs renewed their request for a damages trial.

On July 25, 2011, the District Court held a status conference,

in which it heard arguments on whether the liability issue was

appealable as a judgment on fewer than all claims under Rule

54(b). Although the District Court initially indicated that it

would proceed under Rule 54(b), and once again defer

resolution of the damages issue, after both parties agreed that

the judgment on liability was not appealable under Rule 54(b)

(and that it was unlikely that this Court would grant an

interlocutory appeal), the District Court acknowledged that it

would ―need to go back to the papers and see how I extract

myself from the procedural morass that I put myself in.‖ The

District Court then signaled the way in which it would extract

itself, stating ―so let‘s assume that I am going to resurrect a

motion that is two years old [Plaintiffs‘ September 3, 2009

motion for clarification], and let‘s assume that I deny it, and

we‘re left with the situation we have now. At that point,

would it make sense to have a cross-appeal on liability, on the

Daubert decision, and get it up to the Third Circuit?‖

27

It is unclear from the record why sixteen months

passed between Eaton‘s motion and the District Court‘s

decision on the motion.

80

Several days later, on August 4, 2011, the District

Court issued a memorandum opinion and order denying

Plaintiffs‘ motion for clarification, and awarding $0 in

damages. The District Court‘s entire analysis of Plaintiffs‘

request to modify DeRamus‘s report consisted of one

paragraph. The District Court concluded that allowing

Plaintiffs to amend DeRamus‘s expert report ―would be

tantamount to reopening expert discovery‖ because DeRamus

would need to be deposed again and Eaton would have to

prepare another rebuttal expert report. The District Court also

noted that, when it granted leave for Plaintiffs to move for

clarification, leave was granted only for Plaintiffs to show

that DeRamus‘s report already contained an alternate

damages calculation, and that Plaintiffs‘ motion requested

permission to submit additional damages calculations.

Therefore, the District Court concluded, ―[a]t this stage of the

litigation,‖ it would not give Plaintiffs an opportunity to

modify their damages estimate.

We provide this extensive review of the procedural

history to make a basic point: while we appreciate the District

Court‘s attempt to conserve judicial resources and refrain

from addressing the damages issue unless absolutely

necessary, it is apparent from the record that Plaintiffs‘

request for permission to submit alternative damages

calculations was given little more than nominal consideration.

We are mindful that the District Court has considerable

discretion in matters regarding expert discovery and case

management, and a party challenging the district court‘s

conduct of discovery procedures bears a ―heavy burden.‖ In

re Fine Paper, 685 F.2d at 817-18 (―We will not interfere

81

with a trial court‘s control of its docket ‗except upon the

clearest showing that the procedures have resulted in actual

and substantial prejudice to the complaining litigant.‘‖)

(citation omitted); see Schiff, 602 F.3d at 176. Under Federal

Rule of Civil Procedure 26(a)(2), a party is required to

disclose an expert report containing ―a complete statement of

all opinions the witness will express and the basis and reasons

for them.‖ Fed. R. Civ. P. 26(a)(2)(B)(i) (emphasis added).

Any additions or changes to the information in the expert

report must be disclosed by the time the party‘s pretrial

disclosures are due. Fed. R. Civ. P. 26(e)(2). Here, Plaintiffs

were required to make all mandatory disclosures six months

before trial, including all damages calculations. The damages

estimates in DeRamus‘s report were found to be unreliable,

and Plaintiffs sought, after the date by which discovery

disclosures were due, to modify the estimates to reflect

reliance on different data. Ordinarily, we will not disrupt a

district court‘s decision to deny a party‘s motion to add

information to an expert report under such circumstances.

Schiff, 602 F.3d at 176; In re Fine Paper, 685 F.3d at 817. A

plaintiff omits evidence necessary to sustain a damages award

at its own risk. See Natural Res. Def. Council, Inc. v. Texaco

Ref. & Mktg., Inc., 2 F.3d 493, 504 (3d Cir. 1993).

However, exclusion of critical evidence is an

―extreme‖ sanction, and thus, a district court‘s discretion is

not unlimited. Konstantopoulos v. Westvaco Corp., 112 F.3d

710, 719 (3d Cir. 1997); see also E.E.O.C. v. Gen. Dynamics

Corp., 999 F.2d 113, 116 (5th Cir. 1993) (explaining that a

continuance, as opposed to exclusion, is the ―preferred

means‖ of dealing with a party‘s attempt to offer new

82

evidence after the time for discovery has closed). There are

indeed times, even when control of discovery is at issue, that

a district court will ―exceed[] the permissible bounds of its

broad discretion.‖ Drippe v. Tobelinski, 604 F.3d 778, 783

(3d Cir. 2010). In Meyers v. Pennypack Woods Home

Ownership Ass’n, 559 F.2d 894, 905 (3d Cir. 1977),

overruled on other grounds by Goodman v. Lukens Steel Co.,

777 F.2d 113 (3d Cir. 1985), we set forth five factors that

should be considered in deciding whether a district court‘s

exclusion of evidence as a discovery sanction constitutes an

abuse of discretion. Here, although the District Court‘s

decision was not a discovery sanction nor an exclusion of

proffered evidence, but rather an exercise of discretion to

control the discovery process and a refusal to allow

submission of additional evidence, we find the Pennypack

factors instructive, and thus they will guide our inquiry. See

Trilogy Commc’ns, Inc. v. Times Fiber Commc’ns, Inc., 109

F.3d 739, 744-45 (Fed. Cir. 1997) (applying factors similar to

those set forth in Pennypack to evaluate whether a district

court erred in denying the plaintiff‘s motion to supplement its

expert report with additional data); see also Hunt v. Cnty. of

Orange, 672 F.3d 606, 616 (9th Cir. 2012) (applying similar

factors to determine whether the district court abused its

discretion in denying a motion to amend a pretrial order).

In considering whether the District Court abused its

discretion in denying Plaintiffs‘ request to submit alternate

damages calculations, we will consider: (1) ―the prejudice or

surprise in fact of the party against whom the excluded

witnesses would have testified‖ or the excluded evidence

would have been offered; (2) ―the ability of that party to cure

83

the prejudice‖; (3) the extent to which allowing such

witnesses or evidence would ―disrupt the orderly and efficient

trial of the case or of other cases in the court‖; (4) any ―bad

faith or willfulness in failing to comply with the court‘s

order‖; and (5) the importance of the excluded evidence.

Pennypack, 559 F.2d at 904-05. The importance of the

evidence is often the most significant factor. See Sowell v.

Butcher & Singer, Inc., 926 F.2d 289, 302 (3d Cir. 1991);

Pennypack, 559 F.2d at 904 (observing ―how important [the

excluded] testimony might have been and how critical [wa]s

its absence‖).

Applying the Pennypack factors to this case, we

conclude that the District Court abused its discretion in

denying Plaintiffs‘ request to allow DeRamus to submit his

alternate damages estimates. As to the first and second

factors, Eaton would not have suffered substantial prejudice if

DeRamus were allowed to amend his expert report.

DeRamus‘s new calculations will be based on data from the

initial report, which Eaton has been aware of for nearly three

years, and DeRamus will employ methodologies that the

District Court has already recognized as being regularly and

reliably applied by economists. As Plaintiffs noted in their

motion for clarification, it would be ―a straightforward matter

of arithmetic‖ to substitute data from the econometric model

and actual sales data for the SBP projections. For this reason,

the District Court‘s concern that granting Plaintiffs‘ request

would be ―tantamount to reopening discovery‖ seems

unfounded. Although Eaton will have to respond to new

calculations, it will not have to analyze any new data, or

challenge any new methodologies. Moreover, Plaintiffs

84

specifically set forth in their motion for clarification the

changes that DeRamus would make, and because the changes

only involved the substitution of inputs, Eaton would not be

unfairly surprised by the new damages estimates.

As to the third Pennypack factor, allowing DeRamus

to submit additional damages calculations will not disrupt the

orderly and efficient flow of the case. In fact, our ruling on

the liability issues and remand to the District Court to resolve

damages is precisely what the District Court and the parties

envisioned all along. Eaton, well aware of the District

Court‘s desire to have this Court determine the liability issues

before setting a damages trial, suggested that the best way to

accomplish the District Court‘s objective was to amend the

JMOL order to include ―zero damages and no injunctive

relief.‖ As the District Court stated at the July 25, 2011 status

conference, ―[t]he way I handle complex litigation generally,

when I bifurcate, is that I enter a final judgment pursuant to

Rule 54(b) . . . and once the Circuit Court determines liability,

if there is a reason to have a damages trial, we have a

damages trial.‖ Thus, it cannot seriously be a surprise to any

of the parties that they will once again be required to address

damages in this case. Additionally, Eaton repeatedly states in

its brief that Plaintiffs seek to reopen discovery ―on the eve of

trial.‖ Although that may have been true when Plaintiffs‘

original motion for clarification was filed, it is no longer true.

Trial ended in October 2009 and thus, when the District Court

finally ruled on Plaintiffs‘ motion, there was no longer any

time-crunch problem. Any concern that granting Plaintiffs‘

motion would prevent Eaton from being able to effectively

prepare to address DeRamus‘s new damages estimates at trial

85

is no longer relevant, nor is there any risk that granting

Plaintiffs‘ motion would excessively delay a trial on liability.

As to the fourth factor, there is no evidence of any bad

faith on the part of Plaintiffs. However, under this fourth

factor, we may also consider the Plaintiffs‘ justifications for

failing to include alternative damages calculations in the

event calculations based on the SBP were found to be

insufficient. See Pennypack, 559 F.2d at 905; Gen. Dynamics

Corp., 999 F.2d at 115-16. Given that DeRamus‘s report

already included the data necessary to develop alternate

damages estimates, he could very easily have provided such

estimates. Plaintiffs have provided no persuasive explanation

for his failure to do so, other than that he believed his existing

estimates were sufficiently reliable. It is not the district

court‘s responsibility to help a party correct an error or a poor

exercise of judgment, and thus, Plaintiffs‘ conscious choice to

rely so heavily on data that was ultimately found to be

unreliable weighs against a finding of abuse of discretion.

This is especially true in a case such as this, where the party

submitting the flawed expert report is a large corporation with

significant resources represented by highly competent

counsel.

However, perhaps the most important factor in this

case is the critical nature of the evidence, and the

consequences if permission to amend is denied. Expert

testimony is necessary to establish damages in an antitrust

case. As such, without additional damages calculations, it is

clear that Plaintiffs will be unable to pursue damages, despite

the fact that they won at the liability stage. Compare Gen.

Dynamics Corp., 999 F.2d at 116-17 (finding an abuse of

86

discretion in the district court‘s exclusion of expert testimony,

in part, because the total exclusion of such testimony ―was

tantamount to a dismissal of the [plaintiff‘s] . . . claim‖), with

Sowell, 926 F.2d at 302 (finding no abuse of discretion in

district court‘s exclusion of proffered expert testimony, in

large part, because ―the record [was] totally devoid of any

indication of . . . how th[e] testimony might have bolstered

[the plaintiff‘s] case,‖ and thus, there was ―no basis whatever

for believing that the admission of expert testimony would

have influenced the outcome of th[e] case‖). The District

Court‘s decision therefore would clearly influence the

outcome of the case. See Sowell, 926 F.2d at 302.

Significantly, in the antitrust context, a damages award

not only benefits the plaintiff, it also fosters competition and

furthers the interests of the public by imposing a severe

penalty (treble damages) for violation of the antitrust laws.

See Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262

(1972) (―Every violation of the antitrust laws is a blow to the

free-enterprise system envisaged by Congress. . . . In

enacting these laws, Congress had many means at its disposal

to penalize violators. It could have, for example, required

violators to compensate federal, state, and local governments

for the estimated damage to their respective economies

caused by the violations. But, this remedy was not selected.

Instead, Congress chose to permit all persons to sue to

recover three times their actual damages . . . . By [so doing],

Congress encouraged these persons to serve as ‗private

attorneys general.‘‖) (citations omitted); Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 655

(1985) (―A claim under the antitrust laws is not merely a

87

private matter. The Sherman Act is designed to promote the

national interest in a competitive economy . . . .‖) (quotation

omitted). Thus, if Plaintiffs are not able to pursue damages,

not only will they be unable to recover for the antitrust injury

Eaton caused, the policy of deterring antitrust violations

through the treble damages remedy will also be frustrated.

See Paoli II, 35 F.3d at 750 (―[T]he likelihood of finding an

abuse of discretion is affected by the importance of the

district court‘s decision to the outcome of the case and the

effect it will have on important rights.‖).

In sum, after weighing the Pennypack factors and

taking into account the circumstances under which Plaintiffs‘

motion for clarification was ultimately denied, we conclude

that the District Court abused its discretion in not permitting

Plaintiffs to submit alternate damages calculations.28

28

We express no opinion as to the reliability or

admissibility of DeRamus‘s alternate damages calculations.

That is a matter left to the District Court on remand.

However, we note that Plaintiffs‘ motion for clarification only

sought to include damages calculations based on data already

in the expert report, and that fact is crucial to our holding that

prejudice to Eaton can be easily cured. Nothing in our

opinion should be read as requiring the District Court to allow

Plaintiffs to bring in entirely new data for the revised

damages estimates.

88

D. Article III Standing to Seek Injunctive Relief

Finally, we turn to Eaton‘s contention that Plaintiffs

lack standing to seek injunctive relief. Eaton argues that

Plaintiffs‘ complete withdrawal from the HD transmissions

market in 2006 and their failure to present evidence showing

anything more than a mere possibility that they will reenter

the market precludes a finding of Article III standing as to

injunctive relief. Although the District Court did not directly

address standing, it noted in a footnote that, ―[w]hile

[P]laintiffs are no longer in business and are unable to

directly benefit from an injunction, here, an injunction is

appropriate because of the public‘s interest in robust

competition and the possibility that [P]laintiffs may one day

reenter the market.‖ ZF Meritor LLC v. Eaton Corp., 800 F.

Supp. 2d 633, 639 (D. Del. 2011). We agree with Eaton that

this determination was improper, and we will therefore vacate

the injunction issued by the District Court.29

29

Even though Meritor was still technically in the HD

transmissions business at the time the complaint in this case

was filed, it is still appropriate to frame this issue as one of

standing, rather than one of mootness. Plaintiffs‘ complaint,

which was filed on October 5, 2006, stated that Meritor

intended to exit the HD transmissions business in January

2007, and did not indicate any intent to reenter. Thus, even at

the time the complaint was filed, Plaintiffs could not

demonstrate the requisite likelihood of future injury sufficient

to confer standing. See Davis v. F.E.C., 554 U.S. 724, 734

(2008) (―[T]he standing inquiry [is] focused on whether the

party invoking jurisdiction had the requisite stake in the

89

A plaintiff bears the burden of establishing that he has

Article III standing for each type of relief sought. Summers v.

Earth Island Inst., 555 U.S. 488, 493 (2009). In order to have

standing to seek injunctive relief, a plaintiff must show:

(1) that he is under a threat of suffering ―‗injury in fact‘ that is

concrete and particularized; the threat must be actual and

imminent, not conjectural or hypothetical‖; (2) a causal

connection between the injury and the conduct complained

of; and (3) a likelihood that a favorable judicial decision will

prevent or redress the injury. Id. (citing Friends of Earth, Inc.

v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-81 (2000)).

Even if the plaintiff has suffered a previous injury due to the

defendant‘s conduct, the equitable remedy of an injunction is

―unavailable absent a showing of irreparable injury, a

requirement that cannot be met where there is no showing of

any real or immediate threat that the plaintiff will be wronged

again[.]‖ City of Los Angeles v. Lyons, 461 U.S. 95, 111

(1983); see O’Shea v. Littleton, 414 U.S. 488, 495-96 (1974)

(―Past exposure to illegal conduct does not in itself show a

present case or controversy regarding injunctive relief . . . if

unaccompanied by any continuing, present adverse effects.‖).

Accordingly, a plaintiff may have standing to pursue

outcome when the suit was filed.‖) (citations omitted); U.S.

Parole Comm’n v. Geraghty, 445 U.S. 388, 397 (1980) (―The

requisite personal interest that must exist at the

commencement of the litigation (standing) must continue

throughout its existence (mootness).‖) (citation omitted).

Moreover, even if we treated this as a mootness question, our

conclusion would remain the same.

90

damages, but lack standing to seek injunctive relief. Lyons,

461 U.S. at 105.

For example, in City of Los Angeles v. Lyons, the

plaintiff sued the city, seeking damages, injunctive relief, and

declaratory relief, for an incident in which he was allegedly

choked by police officers. Id. at 97. The Supreme Court held

that, although the plaintiff clearly had standing to seek

damages, he lacked standing to seek injunctive relief because

he failed to establish a ―real and immediate threat‖ that he

would again be stopped by the police and choked. Id. at 105.

―Absent a sufficient likelihood that he [would] again be

wronged in a similar way, [the plaintiff] [was] no more

entitled to an injunction than any other citizen of Los

Angeles.‖ Id. at 111. Likewise, in Summers v. Earth Island

Institute, the Court held that an organization lacked standing

to enjoin the application of Forest Service regulations in

national parks where its members expressed only a ―vague

desire‖ to return to the affected parks. 555 U.S. at 496.

―Such some-day intentions—without any description of

concrete plans, or indeed any specification of when the some

day will be—do not support a finding of . . . actual or

imminent injury.‖ Id. (quoting Lujan v. Defenders of

Wildlife, 504 U.S. 555, 564 (1992)) (internal marks omitted);

see also Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541,

2559-60 (2011) (noting that employees who no longer

worked for Wal-Mart lacked standing to seek injunctive or

declaratory relief against Wal-Mart‘s employment practices).

Applying those principles to our case, we hold that

Plaintiffs lack standing to seek an injunction. They clearly

have standing to seek damages based on Eaton‘s violation of

91

the antitrust laws while ZF Meritor and Meritor were

competitors. However, the ZF Meritor joint venture

operationally dissolved in 2003, Meritor stopped

manufacturing HD transmissions in 2006, and Meritor has

expressed no concrete desire to revive the joint venture or

otherwise reenter the market. The sole evidence in the record

of Meritor‘s future intentions is found in one page of trial

testimony, in which a Meritor official stated that there had

been internal discussions at the company about the possibility

of reentry, but that no decision had been made. The official

testified that Meritor ―continue[d] to monitor the performance

of the products that are in the marketplace[,] . . . ha[d] a very

thorough understanding of how the products [we]re

working[,] . . . and [was] actively considering what [its]

alternatives might be.‖ He explained, however, that upon any

attempt to reenter, Meritor would be confronted with the

―same obstacle that caused the dissolution of the joint

venture.‖30

As the District Court acknowledged, this evidence

establishes no more than a ―possibility‖ that Meritor might

one day reenter the market. Where the District Court went

30

In a post-trial status conference, the District Court

asked Plaintiffs‘ counsel why an injunction would be

appropriate given that Plaintiffs were no longer in the

business. Plaintiffs‘ counsel could give no more concrete

information about Plaintiffs‘ plans than the witness, stating

simply that, if Eaton‘s conduct was enjoined, ―a different set

of calculations‖ would apply to Plaintiffs‘ discussions

regarding reentry into the market.

92

wrong, however, was in concluding that such a possibility is

sufficient to confer Article III standing for injunctive relief.

See McCray v. Fidelity Nat’l Ins. Co., 682 F.3d 229, 242-43

(3d Cir. 2012) (―Allegations of possible future injury are not

sufficient to satisfy Article III.‖) (internal marks and citation

omitted). Plaintiffs were required to set forth sufficient facts

to show that they were entitled to prospective relief, including

that they were ―likely to suffer future injury.‖ McNair v.

Synapse Grp. Inc., 672 F.3d 213, 223 (3d Cir. 2012) (citation

omitted) (emphasis added); see McCray, 682 F.3d at 243

(explaining that ―a threatened injury must be certainly

impending and proceed with a high degree of certainty‖)

(internal marks and citation omitted). Absent a showing that

they are likely to reenter the market and again be confronted

with Eaton‘s exclusionary practices, Plaintiffs were ―no more

entitled to an injunction‖ than any other entity that has

considered the possibility of entering the HD transmissions

market. Lyons, 461 U.S. at 111. ―Vague‖ assertions of

desire, ―without any descriptions of concrete plans,‖ are

insufficient to support a finding of actual or imminent injury.

See Summers, 555 U.S. at 496. Although Plaintiffs claim that

they might again enter the market, such a decision ―w[ould]

be their choice, and what that choice may be is a matter of

pure speculation at this point.‖ McNair, 672 F.3d at 225.

Plaintiffs seem to suggest that there is a lower

threshold for standing in antitrust cases.31

However,

31

Specifically, Plaintiffs argue that the appropriate

standard is found in Section 16 of the Clayton Act, which

provides that any person ―shall be entitled to sue for and have

93

Plaintiffs confuse the doctrines of constitutional standing and

antitrust standing. Although the doctrines often overlap in

practice, they are, in fact, distinct. Sullivan v. D.B. Invs., Inc.,

667 F.3d 273, 307 (3d Cir. 2011). Regardless of any

additional requirements applicable to a particular type of

action, a plaintiff must always demonstrate that a justiciable

case or controversy exists sufficient to invoke the jurisdiction

of the federal courts. Id. Plaintiffs‘ failure to do so here

renders any inquiry into antitrust (statutory) standing

unnecessary. See Conte Bros. Auto., Inc. v. Quaker State-

Slick 50, Inc., 165 F.3d 221, 225 (3d Cir. 1998).

We agree with the District Court that there are strong

public policy reasons for issuing an injunction in this case.

However, the fact that there may be strong public policy

reasons for enjoining Eaton‘s behavior does not mean that

Plaintiffs are the appropriate party to seek such an injunction.

Standing is a constitutional mandate, Doe v. Nat’l Bd. of Med.

Exam’rs, 199 F.3d 146, 152 (3d Cir. 1999), and the

consequences that flow from a finding of lack of standing

here, although concerning, cannot affect our analysis.32

injunctive relief . . . against threatened loss or damage by a

violation of the antitrust laws . . . when and under the same

conditions and principles as injunctive relief . . . is granted by

courts of equity.‖ 15 U.S.C. § 26.

32 Because we conclude that Plaintiffs lack standing to

pursue injunctive relief, we need not address Plaintiffs‘

argument that the District Court erred by refusing to allow

them to address the scope of injunctive relief.

94

IV. CONCLUSION

First, we hold that Plaintiffs‘ claims are not subject to

the price-cost test, and instead must be analyzed as de facto

exclusive dealing claims under the rule of reason. Second,

we conclude that Plaintiffs presented sufficient evidence to

support the jury‘s finding that Eaton engaged in

anticompetitive conduct and that Plaintiffs suffered antitrust

injury as a result. Third, we find no error in the District

Court‘s decision to admit DeRamus‘s testimony on the issue

of liability. Fourth, we hold that the District Court properly

exercised its discretion in excluding DeRamus‘s damages

testimony based on his expert report, but we conclude that the

District Court abused its discretion by preventing DeRamus

from submitting alternate damages calculations based on data

already included in his initial report. Finally, we hold that

Plaintiffs lack standing to pursue injunctive relief, and

therefore, we will vacate the injunction issued by the District

Court. We will remand to the District Court for further

proceedings consistent with this opinion.

1

Greenberg, Circuit Judge, dissenting

Notwithstanding the majority‟s thoughtful and well-

crafted opinion, I respectfully dissent as I would reverse the

District Court‟s order that it entered following its opinion

reported at ZF Meritor LLC v. Eaton Corp., 769 F. Supp. 2d 684

(D. Del 2011), denying Eaton‟s motion for judgment as a matter

of law. Although the majority opinion recites in detail the

factual background of this case, I nevertheless also set forth its

factual predicate as I believe the inclusion of certain additional

facts demonstrates even more clearly than the facts the majority

sets forth why Eaton was entitled to judgment as a matter of

law.1

I. FACTS

A. The HD Transmission Market

The parties stipulated before the District Court and do not

now dispute that the relevant product market in this case is

heavy-duty (“HD”) truck transmissions and that the relevant

geographic market is the United States, Canada, and Mexico, the

so-called “NAFTA market.” On appeal, Eaton does not dispute

1 Throughout this dissent I use the same standard of review that

the majority sets forth. Thus while I am exercising plenary

review of the order denying the motion for a judgment as a

matter of law within that review I am being deferential to the

jury verdict.

2

that it possessed monopoly power in that market during the

events relevant to this case.

HD trucks include linehaul trucks, the familiar 18-

wheelers used to travel long distances on highways, and

performance trucks used on unfinished terrain or to carry heavy

loads, such as cement mixers, garbage trucks, and dump trucks.

There are three types of HD truck transmissions: manual,

automatic, and automated mechanical.

As the majority indicates, the NAFTA HD truck

transmission market functions in the following way. Original

Equipment Manufacturers (“OEMs”) construct HD trucks.

There were four OEMs during the period relevant to this

dispute: Freightliner Trucks (“Freightliner”); International Truck

and Engine Corporation (“International”); PACCAR; and Volvo

Group (“Volvo”). OEMs provide the purchasers of HD trucks

with “data books” that list HD truck component part options,

including transmissions, and thereby allow the customer to

select from various options for certain parts of the HD trucks.

The data books list one option as the “standard” offering

with which OEMs will fit the truck unless the customer selects

otherwise. Additionally, the component part listed in the data

book as the lowest-priced option is referred to as the so-called

“preferred” or “preferentially-priced” option.2 For obvious

2“Standard” and “preferred” positioning are not the same thing.

See J.A. at 2546 (PACCAR and Eaton‟s LTA) (stating that

PACCAR will list Eaton‟s product “as Standard Equipment and

the Preferred Option,” whereas “„Standard Equipment‟ means

3

reasons, positioning as the standard or preferred component part

option in a data book can be beneficial and a form of promotion

of the parts that the component part manufacturers supply.

Evidence adduced at trial, which I explore further below, shows

that OEMs decide which component parts to list as standard or

preferred based, at least in part, on their determination of which

component part is the most advantageous option for them to

supply in terms of such factors as cost of supply pricing as to the

OEMs and the availability and performance of the product.

Consequently, the OEMs and component part manufacturers

negotiate with respect to data book positioning.

Data books, however, are not the exclusive means of

advertising HD truck transmissions or other parts nor do they

restrict the truck purchasers‟ choices. Component suppliers,

such as appellees3 and Eaton, market directly to purchasers, and

purchasers of HD trucks can and do request unpublished options

that are not listed in the data books.

B. The Parties and Market Conditions

During the 1950s, Eaton began manufacturing

transmissions for HD trucks, and eventually it developed a full

the equipment that is provided to a customer unless the customer

expressly designates another supplier‟s product” and “„Preferred

Option‟ means the lowest priced option in the Data Book for

comparable products”).

3 I refer to the plaintiffs as appellees even though they are also

appellants in these consolidated appeals.

4

product line of transmissions in a range of speeds and styles.

Prior to 1989, Eaton was the only domestic manufacturer of HD

truck transmissions. In 1989, however, Meritor entered the

market with 9- and 10-speed HD manual transmissions for

linehaul trucks. But, unlike Eaton, Meritor did not offer nor did

it develop at any point a full product line of HD truck

transmissions. Nevertheless, by 1999 Meritor had obtained

approximately 18% of the market for sales of HD truck

transmissions in North America.

In 1999, Meritor entered into a joint venture with ZF

Freidrichshafen (“ZF AG”), a large German company that

previously had not sold HD truck transmissions in North

America. The joint venture, called ZF Meritor (“ZFM”), sought

to adapt for the NAFTA market ZF AG‟s “ASTronic”

transmission, a linehaul 12-speed, 2-pedal, automated

mechanical transmission. Meritor transferred its transmission

business to ZFM, and ZFM introduced the ASTronic (renamed

the “FreedomLine” for the NAFTA market) to these new

markets around February 2001. At that time, Eaton did not have

a two-pedal automated mechanical transmission and did not

intend to release one until 2004. Appellees believe that the

FreedomLine was technically superior to other HD truck

transmissions available.

In late 1999, during the same time period that appellees

formed ZFM, there was a severe economic downturn in the

NAFTA market area that caused a sharp decline of HD truck

orders. By 2001, around the time ZFM introduced the

FreedomLine, HD truck orders had fallen by approximately

50%, with demand plummeting from more than 300,000 new

5

HD truck orders per year to roughly 150,000 orders.

C. The Long-Term Agreements

In the 1980s and 1990s, Eaton entered into supply

agreements with each of the four OEMs. These agreements set

the prices for Eaton‟s transmissions and offered volume

discounts to the OEMs, i.e., discounted prices based on the

OEMs‟ purchase of a certain quantity of transmissions.

Appellees do not allege that these agreements violated the

antitrust laws. Beginning in late 2000, however, Eaton entered

into new supply agreements with all four of the OEMs. Those

agreements, to which the parties refer as long-term agreements

(“LTAs”), are at the core of the present dispute.

Eaton‟s LTAs offered the OEMs rebates based on

market-share targets. The discounts thus provided the OEMs

with lower prices on Eaton‟s transmissions conditioned on their

purchase of a certain percentage of their transmission needs

from Eaton. Although the LTAs‟ terms varied, all of the LTAs

at issue were consistent in two respects.

First, the LTAs were not explicitly exclusive-dealing

contracts: each OEM remained free to buy parts from any other

HD transmission manufacturer, including ZFM, and none of the

LTAs conditioned Eaton‟s payment of rebates on an OEM‟s

purchase of 100% of its transmission needs from it. Second,

each LTA contained a so-called “competitiveness clause” that

permitted the OEM to exclude an Eaton product from the share

target and to terminate its LTA altogether if another

manufacturer offered transmissions of better quality or lower

6

price. Because the LTAs are at the crux of ZFM‟s claims, I

review those four contracts and the circumstances of their

formation in some detail.

1. Freightliner

As of 1998, both Eaton and Meritor had respective three-

year supply agreements with Freightliner, the largest of the

OEMs. Meritor‟s agreement provided that it would reduce the

price of its component parts if Freightliner listed Meritor‟s parts

as standard in its data book, while, as I have mentioned, Eaton‟s

agreement provided volume-discount rebates to Freightliner.

In October 2000, Freightliner notified Meritor, which by

then had evolved into ZFM with respect to its transmission

business, that Eaton had offered it 10-speed transmissions at a

price significantly lower than Meritor‟s price, Eaton was

offering certain transmissions that Meritor did not have

available, and Eaton‟s transmissions were superior to Meritor‟s

in price and technology. Pursuant to a provision in Meritor‟s

supply agreement that required Meritor to remain competitive

with respect to its products in terms of quality and technology,

Freightliner notified Meritor that it had 90 days within which to

match Eaton‟s inventory or Freightliner would delete Meritor‟s

noncompetitive products from the agreement. Though Meritor

disputed Freightliner‟s contention it did not make a counteroffer

or offer to match Eaton‟s inventory.

Soon thereafter, in November 2000, Eaton entered into a

five-year LTA with Freightliner, one of the four contracts that

appellees challenge. The LTA provided rebates ranging from

7

$200 to $700, contingent on a 92% share target for Eaton‟s

transmissions and clutches, an additional truck component that

Eaton manufactured. In 2003, Eaton and Freightliner amended

the LTA by adopting a sliding scale that entitled Freightliner to

varying lower rebates if it met lower market-share targets

beginning at 86.5% and going up to 90.5%.

In exchange for the discounted prices, the LTA required

Freightliner to list Eaton‟s transmissions as the “preferred”

option in its data book. Significantly, however, Freightliner

“reserve[d] the right to publish” the FreedomLine transmission

“through the life of the agreement at normal retail price levels.”

J.A. at 1948. The LTA also provided that in 2002 Freightliner

would publish Eaton‟s transmissions and clutches in its data

book exclusively, but the parties amended that provision in 2001

to allow Freightliner to continue to publish Eaton‟s competitors‟

products. From 2002 onwards, Freightliner did not list ZFM‟s

manual transmissions but it continued to list ZFM‟s other

transmissions from 2000 to 2004. In 2004, however,

Freightliner removed the FreedomLine from its data books

because Meritor4 had refused to pay a $1,250 rebate it had

promised to Freightliner on that product and because

Freightliner had experienced reliability issues with ZFM‟s

products. See id. at 3725 (letter from Freightliner representative

to Meritor representative (Feb. 10, 2004)) (“Freightliner is

outraged at ArvinMeritor in the handling of the FreedomLine

transmissions price changes. It is totally unacceptable that

4As explained below, ZFM dissolved in December of 2003, and

thus Meritor was handling sales of the FreedomLine

transmission in the NAFTA market as of 2004.

8

ArvinMeritor would commit to price protection, and then seek

to renege on that commitment.”).

Under the LTA, Eaton had the right to terminate the

agreement if Freightliner did not meet its share targets. In 2002,

however, even though Freightliner did not meet the 92% share

target, Eaton did not terminate the agreement. In 2003, the

parties amended the LTA so that it would last for a total of ten

years, extending the agreement to 2010.

2. International

Eaton entered into a five-year LTA with International in

July 2000. A representative from International stated that

International entered into the LTA because it made “good

business sense,” id. at 1532, inasmuch as the LTA provided the

lowest purchase price for International and there was “greater

customer preference and brand recognition for the Eaton

product,” id. at 1528.

In return, Eaton provided a $2.5 million payment to

International, $1 million of which was payable in cash or in

cost-savings initiatives. The LTA provided sliding scale rebates

of 0.35% to 2% beginning at a market share of 80% and up to

97.5% and above. It also provided for sliding rebates based on a

market share of Eaton‟s clutches. For current truck models,

International agreed to list Eaton‟s transmission as the preferred

option, and for future models, it agreed to publish Eaton‟s

transmissions exclusively.5 Notwithstanding the latter

5International already had listed Eaton as the standard option as

9

provision, International continued to list ZFM‟s manual

transmissions in its printed data book.

3. PACCAR

In July 2000, Eaton entered into a seven-year LTA with

PACCAR. A PACCAR representative stated that PACCAR

agreed to the market-share rebates because it “ma[d]e long term

economic sense and it ha[d] a total value as to PACCAR.” Id. at

1555. The PACCAR representative indicated that the “total

value” concept incorporated such considerations as the “lower

cost” provided by the LTAs, “providing a full product line of . . .

transmissions,” “providing product during periods of peak

demand and ensuring the product is available,” “warranty

provisions,” and “aftermarket supply.” Id. at 1555-56.

The representative indicated that PACCAR was in

discussions with ZFM regarding a supply agreement but

ultimately it declined to enter into an agreement with ZFM

because, apart from Eaton‟s more appealing offer, ZFM suffered

from negative considerations such as ZFM‟s restricted output of

its products, “massive transmission failure in the marketplace

that caused market unacceptance of their transmissions earlier,”

and ZFM‟s lack of a full product line. Id. at 1557, 1562.

Additionally, PACCAR “always [paid] . . . a higher cost [for a

ZFM product] than a comparable Eaton product, independent of

the rebate,” particularly for the FreedomLine, which, according

of 1996 because, according to an International representative,

Eaton provided the greatest value to International. See J.A. at

1533.

10

to the PACCAR representative, was “by design, a more

expensive product” because of its European origins. Id. at 1558-

59. In this regard, the representative stated that Eaton‟s rebates

were not “the only thing that made them competitive.” Id. at

1562.

Under the LTA, Eaton provided price reductions, a $1

million payment, firm pricing for seven years, and engineering

and marketing support. PACCAR also could obtain rebates

ranging from 2% to 3% in exchange for meeting 90% to 95%

market share targets in both transmissions and clutches. In

exchange, PACCAR was required to list Eaton as the standard

and preferred option in its data book. At all times PACCAR

continued to list ZFM‟s transmissions in its data book.

4. Volvo

Eaton entered into a five-year LTA with Volvo in

October 2002. A Volvo representative stated that Volvo entered

into the LTA because it represented “the best overall value for

Volvo” in terms of “price, delivery, quality manufacturing, and

logistics.” Id. at 1430. Indeed, another Volvo representative

stated that “[p]ricing was significantly better with Eaton [even]

excluding rebates.” Id. at 1295; see id. at 1293, 1296 (the same

representative estimating the savings to Volvo from the LTA

with Eaton to be about 12% to 15% excluding the rebates and

stating that Volvo‟s motivation in entering the LTA was “purely

dollars, dollars and cents”). Volvo was in discussions with ZFM

to sign a supply agreement, but ultimately it did not do so in

large part because of ZFM‟s “inability to have a complete

product offering of all transmissions.” Id. at 1431.

11

The LTA provided sliding scale rebates of 0.5% to 1.5%

originally set at 65% market share, and, as of 2004, a 70% to

78% market share. Eaton had the option of terminating the LTA

if its market share at Volvo fell below 68%. In turn, Volvo

agreed to position Eaton‟s transmissions and clutches as the

standard and preferred offering. Volvo continued to list in its

data books both ZFM‟s and Volvo‟s own transmissions that it

manufactured only for installation in its own trucks.6

D. ZFM‟s Business and Exit from the Market

As of July 2000, before Eaton signed any of the

challenged LTAs, ZFM had lost nearly 20% of its market share

in transmissions, its share declining from 16.1% to 13%.

Minutes from a ZFM Board of Directors meeting held in July

2000 reveal that ZFM‟s President, Richard Martello, identified a

number of factors that caused ZFM‟s falling market position,

including:

(i) poor product quality image, (ii) a decrease in

Ryder business, (iii) turnover in the [c]ompany‟s

sales organization, (iv) an increase in sales of

Eaton Autoshift, (v) the push towards 13-speed

transmissions, especially by Freightliner, (vi) the

multi-year fleet business lost due to competitive

6Eaton also entered into an LTA with the OEM Mack Trucks

that same month. Volvo had acquired Mack Trucks in 2001,

and it appears that the LTAs are substantively the same.

Accordingly, I refer only to the Volvo LTA.

12

equalization cutbacks in early 1999 and (vii)

controlled distribution.

J.A. at 3235.

Some explanation will illuminate Mr. Martello‟s

observations. “Competitive equalization” payments are

incentives a component manufacturer provides directly to truck

purchasers for them to select its products from a data book.

ZFM‟s internal documents, included in the trial record,

demonstrate that “[d]uring the peak periods of production

between March 1999 and September 1999, Meritor reduced

[competitive equalization] payment[s] on deals trying to reduce

the incentive [to] „war‟ with Eaton” but Eaton “continued . . . to

buy business when Meritor declined deals.” Id. at 3028.

“Controlled distribution” refers to the practice of purposefully

limiting the quantity of a product available to the market — a

practice that ZFM identified as the cause of it losing “various

deals” due to ZFM‟s “lack of product” availability. Id. at 3030.

The reference to ZFM‟s decrease in “Ryder business” appears

to refer to the fact that ZFM lost the business of the OEM

previously known as Mack-Ryder due to ZFM‟s controlled

distribution practices. See id.

In that same meeting, Mr. Martello also observed that

there were “significant forces in favor of direct drive, fully

automated transmissions,” including:

(i) major engine changes in October 2002 due to

emissions standards changes, (ii) continued driver

shortages, (iii) continued upward pressure on fuel

13

prices, (iv) market pressure on „guaranteed cost of

operation‟ sales incentives and (v) continued

technician shortages.

Id. at 3236. Significantly, as I already have noted, the

FreedomLine was an automated mechanical transmission, not a

fully automated transmission.

Mr. Martello also noted that the industry was turning

away from the component part manufacturers‟ traditional focus

on advertising directly to truck purchasers as an incentive for

them to select their component part, so-called “pull” advertising,

to focus instead on “the creation of closer relationships with the

OEMs.” Id. Along this line, Mr. Martello observed that the

OEMs desired to have “single source, full product line

suppliers” in an effort to reduce costs. See id. Additionally, Mr.

Martello noted that OEMs were resistant to the prospect of

engineering new products, such as the FreedomLine, into their

trucks, and that, as sales of HD trucks declined, component part

manufacturers provided rapidly increasing sales incentives to the

OEMs. See id. To overcome these obstacles and increase

ZFM‟s market share, Mr. Martello “recommended that a full

line of automated products be released at every OEM and that

[ZFM] develop a full [HD] product line.” Id. at 3237.

Notwithstanding ZFM‟s awareness of the declining HD

truck market, after the 2000 meeting ZFM refused to lower its

prices despite certain OEMs‟ repeated requests that it do so.

See, e.g., id. at 3596 (letter from Chris Benner, ZFM, to Paul D.

Barkus, International (Sept. 19, 2002)) (stating ZFM‟s refusal to

lower prices despite International‟s June 2002 request that it do

14

so); id. at 1537-38 (deposition testimony of Paul D. Barkus,

International) (indicating that ZFM refused International‟s

request that ZFM lower its prices in December 2001); id. at

3953 (ZFM Board minutes) (“Board did not agree with

providing any price decreases to Volvo/Mack.”). To the

contrary, at the end of 2003, ZFM raised the price of the

FreedomLine by roughly 25%, an increase that caused

significant consternation among the OEMs. Moreover, ZFM did

not develop a full HD truck transmission product line as Mr.

Martello had recommended. Furthermore, as the majority notes,

at least two of ZFM‟s transmissions, including its flagship

transmission, the FreedomLine, experienced significant

performance problems resulting in frequent repairs, and, in 2002

and 2003, ZFM faced significant warranty claims on its products

amounting to millions of dollars in potential liability.

Notwithstanding the trouble it experienced in 2000, ZFM

experienced growth in some areas. From 2001 to 2003, the

FreedomLine transmission went from comprising 0% of the

linehaul market to 6% of the linehaul market, and between 2000

and 2003, ZFM‟s market share of linehaul HD truck

transmissions increased at three of the four OEMs. From July

2000 to October 2003, ZFM‟s share of the total HD transmission

market ranged between 8% and 14%.

In spite of its gains, ZFM believed that Eaton‟s LTAs

limited ZFM‟s potential market share to approximately 8% of

the transmission market, not the 30% that it had expected to gain

as a result of the joint venture and which it needed to achieve for

the venture to be a viable business. In December 2003, on the

basis of that calculation, ZFM was dissolved. Following ZFM‟s

15

dissolution, Meritor returned to the transmission business it had

conducted before entering into the joint venture. In 2006,

however, Meritor exited the HD truck transmission business

entirely.

E. Eaton‟s Pricing

At trial, appellees did not allege or introduce any

evidence that Eaton priced its transmissions below any measure

of cost during the relevant time period, and, on appeal, appellees

do not contend that Eaton‟s prices were below cost.

Furthermore, at all times relevant to the present dispute, Eaton‟s

average transmission prices to the OEMs were lower than

ZFM‟s average prices to the OEMs. In other words, the OEMs

paid more to purchase and supply ZFM‟s transmissions to the

truck purchasers than they paid for Eaton‟s transmissions. In

particular, ZFM priced its FreedomLine significantly above the

price of Eaton‟s transmissions.

II. ANALYSIS

Although it frames the question differently, as the

majority recognizes the central question that emerges in this

appeal is what effect, if any, does appellees‟ failure to allege,

much less prove, that Eaton engaged in below-cost pricing have

on its claims? Eaton, of course, contends that the effect is

dispositive, arguing that Supreme Court precedent requires that

courts apply the price-cost test of Brooke Group Ltd. v. Brown

& Williamson Tobacco Corp., 509 U.S. 209, 113 S.Ct. 2578

16

(1993), in any case in which a plaintiff challenges a defendant‟s

pricing practices.7 Appellees challenged Eaton‟s pricing

practices, namely, its market-share discounts, but because

appellees did not introduce evidence that Eaton engaged in

below-cost pricing, Eaton contends that appellees did not

establish that they suffered antirust injury nor did they show that

by adopting the LTAs Eaton violated the antitrust laws.8

7Under the Brooke Group price-cost test, a firm must first

establish that the defendant‟s prices “are below an appropriate

measure of its . . . costs,” and second, it must show that the

defendant “had a reasonable prospect [under § 1 of the Sherman

Act], or, under § 2 of the Sherman Act, a dangerous probability,

of recouping its investment in below-cost prices.” 509 U.S. at

223-24, 113 S.Ct. at 2587-88.

8Apart from meeting the requirements of Article III standing, an

antitrust plaintiff seeking monetary or injunctive relief must

show that it has suffered antitrust injury, i.e., an “injury of the

type that the antitrust laws were intended to prevent and that

flows from that which makes [the] defendant[‟s] acts unlawful.”

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,

489, 97 S.Ct. 690, 697 (1977). Although courts often conflate

the antitrust injury requirement with the determination of

whether the defendant‟s conduct violated the antitrust laws, this

approach is erroneous as the antitrust injury requirement

assumes the defendant‟s conduct was unlawful (and thus

anticompetitive) and asks whether the anticompetitive aspect of

the unlawful conduct is the cause of plaintiff‟s injury. See

Angelico v. Lehigh Valley Hosp., Inc., 184 F.3d 268, 275 n.2

17

Appellees, of course, contend that their failure to show

that Eaton engaged in below-cost pricing is entirely irrelevant to

the success or failure of their claims. Appellees claim that the

obligation to show below-cost pricing applies only where a

(3d Cir. 1999) (“The District Court erred by incorporating the

issue of anticompetitive market effect into its standing analysis,

confusing antitrust injury with an element of a claim under

section 1 of the Sherman Act . . . .”); see also Daniel v. Am. Bd.

of Emergency Med., 428 F.3d 408, 447-48 (2d Cir. 2005)

(explaining that anticompetitive effects of defendant‟s behavior

“are classic „rule of reason‟ questions, distinct from the antitrust

standing question”) (citations omitted). Because I conclude that

Eaton was entitled to judgment as a matter of law as there was

insufficient evidence for the jury‟s conclusion that Eaton

violated Sections 1 and 2 of the Sherman Act and Section 3 of

the Clayton Act, I do not address whether appellees satisfied the

antitrust injury requirement. Accord L.A.P.D., Inc. v. Gen. Elec.

Corp., 132 F.3d 402, 404 (7th Cir. 1997) (“Because LAPD

adequately alleges injury in fact and thus has standing under

Article III, however, we may bypass the antitrust-injury issue to

go straight to the merits.”); Hairston v. Pac. 10 Conference, 101

F.3d 1315, 1318 (9th Cir. 1996) (“[W]e need not decide whether

appellants have met the requirements for antitrust standing,

because they have failed to establish any violation of the

antitrust laws.”); Levine v. Cent. Fl. Med. Affiliates, Inc., 72

F.3d 1538, 1545 (11th Cir. 1996) (“We need not decide whether

Dr. Levine has met the requirements for standing as to any of his

antitrust claims, because as to each one he has failed to establish

any violation of the antitrust laws.”).

18

plaintiff brings a so-called “predatory pricing” claim.9 In this

regard, appellees contend that they were not required to show

that Eaton engaged in below-cost pricing because they did not

bring a “predatory pricing” claim. In fact, appellees explicitly

disavow any allegation that Eaton engaged in below-cost pricing

and instead contend that the LTAs, including the market-share

rebates they contained, amounted to unlawful de facto exclusive

dealing agreements.10

The majority appears to split the difference between the

parties‟ two positions. The majority concludes that the Brooke

9A firm engages in “predatory pricing” when it cuts its prices

below an appropriate measure of cost to force competitors out of

the market or to deter potential entrants from entering the

market. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 584 n.8, 106 S.Ct. 1348, 1355 n.8 (1986). “The

success of any predatory scheme depends on maintaining

monopoly power for long enough both to recoup the predator‟s

losses and to harvest some additional gain.” Id. at 589, 106

S.Ct. at 1357 (emphasis in original). Due to the inherently

speculative nature of such an undertaking, “predatory pricing

schemes are rarely tried, and even more rarely successful.” Id.

10As the leading antitrust treatise points out, “to be challenged as

unlawful exclusive dealing, . . . [a] quantity discount program

would necessarily involve prices above cost, else the program

would not be sustainable.” Phillip E. Areeda & Herbert

Hovenkamp, Fundamentals of Antitrust Law § 18.03b, at 18-70

(4th ed. 2011).

19

Group price-cost test may be dispositive in a case where a

plaintiff brings a claim challenging a defendant‟s pricing

practices11

and alleges that price itself functioned as the

exclusionary tool. I agree completely with the majority‟s

conclusion in this regard. Thereafter, however, our paths

diverge because the majority appears to conclude that where a

plaintiff brings a claim of unlawful exclusive dealing against a

defendant‟s pricing practices but does not contend that the

defendant‟s prices operated as the exclusionary tool, the price-

cost test is irrelevant and has neither dispositive nor persuasive

effect.12

As I explain further below, while I do not believe that the

Supreme Court has held that the inferior courts must impose and

give dispositive effect to the Brooke Group price-cost test in

every claim challenging a defendant‟s pricing practices, the

11

Throughout this opinion I use the term “pricing practices” to

encompass the variety of ways in which a firm may set its

prices, including but not limited to, straightforward price cuts

and conditional rebates or discounts.

12

I recognize that the majority states that Eaton‟s low prices are

not irrelevant to the extent they may help explain why the OEMs

entered the LTAs even though the LTAs allegedly included

terms that were unfavorable to the OEMs and to rebut an

argument that the agreements were inefficient but the majority

does not factor the circumstance that Eaton‟s prices were above

cost into its analysis of whether the LTAs were exclusionary and

anticompetitive, and I believe its failure to do so is error.

20

Court‟s unwavering adherence to the general principle that

above-cost pricing practices are not anticompetitive and its

justifications for that position lead me to conclude that this

principle is a cornerstone of antitrust jurisprudence that applies

regardless of whether the plaintiff focuses its claim on the price

or non-price aspects of the defendant‟s pricing program. Thus,

although the price-cost test may not bar a claim of exclusive

dealing challenging a defendant‟s above-cost pricing practices,

regardless of how a plaintiff casts its claim or the non-price

elements of the pricing practices that the plaintiff identifies as

the exclusionary conduct, where a plaintiff attacks a defendant‟s

pricing practices — and to be clear that is what the market-share

rebate programs at issue here are — the fact that defendant‟s

prices were above-cost must be a high barrier to the plaintiff‟s

success. Accordingly, I believe that we must apply the Brooke

Group price-cost test to the present case and give that test

persuasive effect in the context of our broader analysis under the

antitrust laws at issue.

Allowing appellees that opportunity, the majority

concludes that the plaintiffs adduced sufficient evidence at trial

from which a jury reasonably could infer that the LTAs

represented unlawful “de facto partial exclusive dealing.”13

In

13

I cannot utilize this phrase without making the point that where

a court permits a non-exclusive, non-mandatory supply

agreement to morph into a mandatory exclusive-dealing contract

to legitimize a plaintiff‟s claim of unlawful “de facto partial

exclusive dealing” the court follows antitrust plaintiffs down the

rabbit hole a bit too far. While “de facto partial exclusive

dealing” is a creative neologism, the phrase not only distorts the

21

doing so, the majority concludes that despite the fact that the

LTAs by their terms were not exclusive nor mandatory and

despite the fact that the prices offered under them were at all

times above-cost such that an equally-efficient competitor could

have matched them, they were de facto partial exclusive dealing

contracts because Eaton was a dominant supplier, the OEMs

could not have afforded to lose Eaton as a supplier, and thus, the

majority reasons, the OEMs were compelled to enter the LTAs

and meet their market-share targets. The majority reaches its

English language (in what other realm would one refer to a

contract as “partially exclusive”?), it takes us so far from the

text of Section 3 of the Clayton Act and the actual concept of

exclusive dealing that I shudder to think what will be labeled as

exclusive dealing next.

The majority concedes that “partial exclusive dealing is

rarely a valid antitrust theory.” Typescript at 43 (internal

quotation marks omitted). Indeed, the only thing rarer may be

what appellees actually allege here: “de facto partial exclusive

dealing.” I am not aware of any Supreme Court or court of

appeals precedent recognizing such a claim, and a Westlaw

search of the phrase reveals only one other case recognizing the

concept as a viable antitrust claim. In a sign that we truly have

come full circle, that case is a class action pending in the United

States District Court for the District of Delaware brought by

truck purchasers against Eaton, the four OEMs, and a handful of

other entities, alleging that the same LTAs at issue here violated

Sections 1 and 2 of the Sherman Act and Section 3 of the

Clayton Act. See Wallach v. Eaton Corp., 814 F. Supp. 2d 428,

442-43 (D. Del. 2011).

22

conclusion despite the absence of evidence in the record

suggesting that Eaton would have refused to supply

transmissions to the OEMs had the OEMs failed to meet the

LTAs‟ market-share targets or that Eaton at any point coerced

the OEMs into entering the LTAs or meeting the targets. For

reasons I set forth more fully below, I cannot join my colleagues

in this judicial reworking of the LTAs and the unbridled

speculation the majority‟s reasoning requires to convert the

LTAs into exclusive dealing contracts. Even analyzing

appellees‟ claims under the rule of reason and the principles

used to ascertain whether an exclusive-dealing arrangement is

lawful and employing the deferential standard of review to

which we subject jury verdicts, it is plain that the agreements

could not have been and in fact were not anticompetitive.

A. The Supreme Court‟s Treatment of Antitrust Challenges to

Pricing Practices

Beginning with Cargill, Inc. v. Monfort of Colorado, Inc.,

479 U.S. 104, 107 S.Ct. 484 (1986), the Supreme Court in a

series of cases considering antitrust challenges to pricing

practices has made clear that as a general matter above-cost

pricing practices do not threaten competition. In Cargill, the

Court considered whether Monfort, a beef-packing business, had

shown antitrust injury to the end that it had standing to challenge

the merger of two of its competitors that allegedly violated

Section 7 of the Clayton Act. See id. at 106-09, 107 S.Ct. at

487-88. Monfort presented two theories of antitrust injury: “(1)

a threat of a loss of profits stemming from the possibility that . .

. [defendant], after the merger, would lower its prices to a level

at or only slightly above its costs” and “(2) a threat of being

23

driven out of business by the possibility that . . . [defendant],

after the merger, would lower its prices to a level below its

costs.” Id. at 114, 107 S.Ct. at 491.

The Court rejected Monfort‟s first theory of injury,

stating “the antitrust laws do not require the courts to protect

small businesses from the loss of profits due to continued

competition, but only against the loss of profits from practices

forbidden by the antitrust laws.” Id. at 116, 107 S.Ct. at 492.

Because the defendant‟s above-cost “competition for increased

market share” was not “activity forbidden by the antitrust laws”

but rather constituted “vigorous competition,” Monfort could

not demonstrate antitrust injury under its first theory. Id. In this

regard, the Court noted that “[t]o hold that the antitrust laws

protect competitors from the loss of profits due to such price

competition would, in effect, render illegal any decision by a

firm to cut prices in order to increase market share.” Id. The

antitrust laws, the Court noted, “require no such perverse result”

because “[i]t is in the interest of competition to permit dominant

firms to engage in vigorous competition, including price

competition.” Id. (internal quotation marks and citation

omitted). The Court rejected Monfort‟s second claim that the

defendant would engage in below-cost, i.e. predatory pricing,

following the merger because Monfort had failed to raise and

failed to adduce adequate proof of that claim before the district

court. See id. at 118-19, 107 S.Ct. at 494.

Four years later, in Atlantic Richfield Co. v. USA

Petroleum Co., 495 U.S. 328, 110 S.Ct. 1884 (1990), the Court

reiterated that above-cost pricing practices generally are not

anticompetitive, this time in the context of Section 1 of the

24

Sherman Act. In Atlantic Richfield, USA Petroleum Company

(“USA”), an independent retail marketer of gasoline, alleged

that its competitor, Atlantic Richfield Company (“ARCO”),

which sold gasoline through its own stations and indirectly

through dealers, violated Sections 1 and 2 of the Sherman Act

through a price-fixing scheme that set gasoline prices at below-

market but above-cost levels through its offer of short-term

discounts, such as volume discounts, and the elimination of

credit-card sales to its dealers. See id. at 331-32, 110 S.Ct. at

1887-88. Only USA‟s Section 1 claim was before the Court, see

id. at 333 n.3, 110 S.Ct. at 1888 n.3, and the question presented

was whether USA had suffered an antitrust injury by virtue of

ARCO‟s Section 1 violation, see id. at 335, 110 S.Ct. at 1889.

At the time, ARCO‟s conduct was regarded as a per se violation

of Section 1. See id. (citing Albrecht v. Herald Co., 390 U.S.

145, 88 S.Ct. 869 (1968), overruled by State Oil Co. v. Khan,

522 U.S. 3, 118 S.Ct. 275 (1997)).

First, the Court rejected USA‟s claim that it automatically

satisfied the antitrust injury requirement because ARCO‟s

conduct constituted a per se violation of Section 1. 495 U.S. at

336-37, 110 S.Ct. at 1890-91. The Court then turned to USA‟s

alternative claim that even if it was not entitled to a presumption

of injury, it had suffered injury “because of the low prices

produced by the vertical restraint.” Id. at 337, 110 S.Ct. at 1891.

Rejecting this contention, the Court reasoned that “[w]hen a

firm, or even a group of firms adhering to a vertical agreement,

lowers prices but maintains them above predatory levels, the

business lost by rivals cannot be viewed as an „anticompetitive‟

consequence of the claimed violation.” Id. Such injury, the

Court concluded, “is not antitrust injury; indeed, „cutting prices

25

in order to increase business often is the very essence of

competition.‟” Id. at 338, 110 S.Ct. at 1891 (emphasis in

original) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith

Radio Corp., 475 U.S. 574, 594, 106 S.Ct. 1348, 1359 (1986)).

USA argued alternatively that it was “inappropriate to

require a showing of predatory pricing before antitrust injury

can be established when the asserted antitrust violation is an

agreement in restraint of trade illegal under § 1 of the Sherman

Act, rather than an attempt to monopolize prohibited by § 2.”

Id. at 338, 110 S.Ct. at 1891. As the Court noted, “[p]rice fixing

violates § 1, for example, even if a single firm‟s decision to

price at the same level would not create § 2 liability” because

“the price agreement itself is illegal.” Id. at 338, 110 S.Ct. at

1891. USA contended that therefore it had “suffered antitrust

injury even if [ARCO‟s] pricing was not predatory under § 2 of

the Sherman Act.” Id. at 339, 110 S.Ct. at 1891.

In a passage that is significant in the context of the

present case, the Court also rejected that contention. It

explained:

Although a vertical, maximum-price-fixing

agreement is unlawful under § 1 of the Sherman

Act, it does not cause a competitor antitrust injury

unless it results in predatory pricing. Antitrust

injury does not arise for purposes of § 4 of the

Clayton Act, until a private party is adversely

affected by an anticompetitive aspect of the

defendant‟s conduct; in the context of pricing

practices only predatory pricing has the requisite

26

anticompetitive effect. Low prices benefit

consumers regardless of how those prices are set,

and so long as they are above predatory levels,

they do not threaten competition. Hence, they

cannot give rise to antitrust injury.

Id. at 339-40, 110 S.Ct. at 1891-92 (citations omitted and some

emphasis added).

The Court observed that it had “adhered to this principle

regardless of the type of antitrust claim involved.” Id. at 340,

110 S.Ct. at 1892 (citing Cargill, 479 U.S. at 116, 107 S.Ct. at

492; Brunswick Corp., 429 U.S. at 487, 97 S.Ct. at 696).14

The

14

As did Cargill, Brunswick Corp. involved a competitor‟s

antitrust challenge to an allegedly illegal acquisition under

Section 7 of the Clayton Act because it would have brought a

“„deep pocket‟ parent into a market of „pygmies.‟” 429 U.S. at

487, 97 S.Ct. at 697. The Court concluded that the plaintiff

could not show antitrust injury based on the losses it would

suffer from that acquisition because the aspect of the merger that

made it unlawful did not cause the plaintiff‟s losses. See id.

The majority interprets the Supreme Court‟s statement it

had adhered to the principle that “in the context of pricing

practices only predatory pricing has the requisite anticompetitive

effect” “regardless of the type of antitrust claim involved” to

mean “that the price-cost test applies regardless of the statute

under which a pricing practice claim is brought, not that the

price-cost [test] applies regardless of the type of anticompetitive

conduct.” Typescript at 38 n.13. While the Supreme Court‟s

27

Court noted that although “the source of the price competition in

[Atlantic Richfield] was an agreement allegedly unlawful under

§ 1 of the Sherman Act rather than a merger in violation of § 7

of the Clayton Act . . . that difference [wa]s not salient . . .

[because] [w]hen prices are not predatory, any losses flowing

from them cannot be said to stem from an anticompetitive aspect

of the defendant‟s conduct.” 495 U.S. at 340-41, 110 S.Ct. at

1892 (emphasis in original).

statement undoubtedly makes clear that the principle that above-

cost pricing is not anticompetitive applies regardless of which

provision of the antitrust laws is at issue, I believe that the

Court‟s rather clear statement that it had adhered to this

principle “regardless of the type of antitrust claim involved”

means exactly what it says — that whether the plaintiff

challenges a defendant‟s pricing practices in the context of a

challenge to an allegedly unlawful merger or whether it does so

in the context of a claim that a defendant has entered a price-

fixing agreement a plaintiff cannot contend that the prices

resulting from those arrangements are anticompetitive unless

they are below cost. While I do not believe that the Court‟s

statement in this regard requires that the price-cost test apply

with dispositive force in every challenge to a defendant‟s pricing

practices because there may be other elements of a defendant‟s

conduct that are anticompetitive notwithstanding its above-cost

prices, the Court‟s reasoning undoubtedly lends support to my

conclusion that the price-cost test must factor into a court‟s

decision when it is asked to judge the lawfulness of such a

defendant‟s rebate program.

28

It is, of course, important to understand the significance

of Cargill and Atlantic Richfield in the context of this case.

Cargill and Atlantic Richfield involved the question of whether

the plaintiffs had suffered antitrust injury, not whether above-

cost pricing practices ever can violate Sections 1 and 2 of the

Sherman Act or Section 3 of the Clayton Act. Indeed, at the

time the Court decided Atlantic Richfield, vertical, maximum-

price-fixing schemes were regarded as per se illegal under

Section 1 of the Sherman Act, and the Court assumed in its

analysis that even the above-cost scheme at issue in Atlantic

Richfield was illegal under Section 1.

Nevertheless, though it was writing in the context of the

antitrust injury requirement for the actions, the Court in Cargill

and Atlantic Richfield forcefully rejected the notion that the

above-cost pricing practices at issue threatened competition at

all. See Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892 (“[S]o

long as [prices] are above predatory levels, they do not threaten

competition.”); Cargill, 479 U.S. at 116, 107 S.Ct. at 492

(stating that Cargill‟s above-cost pricing practices aimed at

increasing its market share was not “activity forbidden by the

antitrust laws”) (emphasis added). Because the antitrust laws at

issue in this case require to fix liability on it that Eaton‟s

behavior present a probable threat to or actually negatively

impact competition in the relevant marketplace, these

pronouncements are important here and should bear on our

consideration of the question of whether the particular pricing

practices involved in this case are anticompetitive and thus

violate the antitrust laws.

Along this same line, other courts of appeals have looked

29

to Atlantic Richfield‟s discussion of above-cost pricing practices

not only in the context of considering whether the plaintiff has

demonstrated antitrust injury but also in considering whether a

defendant‟s conduct violates the antitrust laws. See Cascade

Health Solutions v. PeaceHealth, 515 F.3d 883, 902-03 (9th Cir.

2008) (relying on Atlantic Richfield, among other cases, to hold

that bundled discounts are not exclusionary conduct under

Section 2 of the Sherman Act unless the discounts result in

below-cost pricing); Virgin Atl. Airways Ltd. v. British Airways

PLC, 257 F.3d 256, 269 (2d Cir. 2001) (stating in the context of

a challenge to a volume-discount program that “[a]s long as low

prices remain above predatory levels, they neither threaten

competition nor give rise to antitrust injury”) (citing Atl.

Richfield, 495 U.S. at 340, 110 S.Ct. at 1892) (emphasis added);

Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1060-

61 (8th Cir. 2000) (relying on Atlantic Richfield in concluding

that defendant had not violated Section 2 through its above-cost

market-share discounts). Similarly, the Supreme Court has

invoked Atlantic Richfield‟s discussion of below-cost pricing

practices in considering whether pricing practices violate the

antitrust laws.

Indeed, three years after it decided Atlantic Richfield, the

Court reemphasized this principle in concluding that below-cost

pricing was necessary to establish liability under Section 2 of the

Clayton Act in an attack on a defendant‟s pricing practices. In

Brooke Group, Liggett, a generic cigarette manufacturer, alleged

that Brown & Williamson Tobacco Corporation (“B&W”)

violated Section 2 of the Clayton Act when it offered below-cost

price-cuts and volume rebates on “orders of very substantial

size” to its wholesalers on B&W‟s generic cigarettes in an effort

30

to reverse decreasing sales of its branded cigarettes. 509 U.S. at

216-17, 113 S.Ct. at 2584. The Court stated that “whether the

claim alleges predatory pricing under § 2 of the Sherman Act or

primary-line price discrimination under the Robinson-Patman

Act, . . . , a plaintiff seeking to establish competitive injury

resulting from a rival‟s low prices must prove that the prices

complained of are below an appropriate measure of its rival‟s

costs” and “that the competitor had a reasonable prospect, or

under § 2 of the Sherman Act, a dangerous probability, of

recouping its investment in below-cost prices.” Id. at 222-24,

113 S.Ct. at 2587-88 (emphasis added). Because Liggett had

failed to provide sufficient evidence that B&W had a reasonable

prospect of recouping its allegedly predatory losses, the Court

concluded that B&W was entitled to judgment as a matter of

law. See id. at 243, 113 S.Ct. at 2598.

Importantly, in explaining the dual requirements set forth

above, the Court noted that it had “rejected elsewhere the notion

that above-cost prices that are below general market levels or

the costs of a firm‟s competitors inflict injury to competition

cognizable under the antitrust laws.” Id. at 223, 113 S.Ct. at

2588 (citing Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892).

In this connection, the Court reiterated Atlantic Richfield‟s

principle that “„[l]ow prices benefit consumers regardless of

how those prices are set, and so long as they are above predatory

levels, they do not threaten competition . . . regardless of the

type of antitrust claim involved.‟” Id. (quoting Atl. Richfield,

495 U.S. at 340, 110 S.Ct. at 1892). The Court observed:

As a general rule, the exclusionary effect

of prices above a relevant measure of cost either

31

reflects the lower cost structure of the alleged

predator, and so represents competition on the

merits, or is beyond the practical ability of a

judicial tribunal to control without courting

intolerable risks of chilling legitimate price-

cutting.

509 U.S. at 223, 113 S.Ct. at 2588.

The Court again rejected an attack on above-cost pricing

practices with its decision in Weyerhaeuser Co. v. Ross-

Simmons Hardwood Lumber Co., 549 U.S. 312, 320-21, 127

S.Ct. 1069, 1075 (2007). Weyerhaeuser involved the unusual

situation in which there was an allegation of “predatory

bidding,” meaning that a firm with monopoly buying power on

the supply side drives up the price of that input to levels at

which a competitor cannot compete. Id. at 320, 127 S.Ct. at

1075. Once the monopolist has caused competing buyers to exit

the market for the input, “it will seek to restrict its input

purchases below the competitive level, thus reduc[ing] the unit

price for the remaining input[s] it purchases[,]” thereby allowing

the monopolist to reap profits that will offset any losses it

suffered in bidding up the input prices. Id. at 320-21, 127 S.Ct.

at 1075-76. The issue was whether a plaintiff alleging that a

defendant engaged in such conduct was required to demonstrate

that the defendant engaged in below-cost pricing through the

alleged predatory bidding on the supply side. Due to the

theoretical and practical similarities between a claim of

predatory pricing and a claim of predatory bidding, the Court

concluded that its Brooke Group test applies to predatory

bidding claims under Section 2 just as the test applies to Section

32

2 predatory pricing claims. See id. at 325, 127 S.Ct. at 1078.

In doing so, the Court noted that in Brooke Group it had

been “particularly wary of allowing recovery for above-cost

price cutting because allowing such claims could, perversely,

„chil[l] legitimate price cutting,‟ which directly benefits

consumers.” Id. at 319, 127 S.Ct. at 1074 (quoting Brooke Grp.,

509 U.S. at 223-24, 113 S.Ct. at 2588). Accordingly, the Court

had “specifically declined to allow plaintiffs to recover for

above-cost price cutting, concluding that „discouraging a price

cut and . . . depriving consumers of the benefits of lower prices .

. . does not constitute sound antitrust policy.‟” Id., 127 S.Ct. at

1074-75 (quoting Brooke Grp., 509 U.S. at 224, 113 S.Ct. at

2588).

Most recently in Pacific Bell Telephone Co. v. Linkline

Communications, Inc., 555 U.S. 438, 129 S.Ct. 1109 (2009), the

Court extended this principle to “price squeeze” claims. Price

squeeze claims allege that a “vertically integrated firm [that]

sells inputs at wholesale and also sells finished goods or services

at retail” has “simultaneously raise[d] the wholesale price of

inputs and cut the retail price of the finished good” thereby

“squeezing the profit margins of any competitors in the retail

market,” and forcing the competitors to “pay more for the inputs

they need . . . [and] cut their retail prices to match the other

firm‟s prices.” Id. at 442, 129 S.Ct. at 1114. The Court noted

that “[t]o avoid chilling aggressive price competition, [it] ha[d]

carefully limited the circumstances under which plaintiffs can

state a Sherman Act claim by alleging that prices are too low.”

Id. at 451, 129 S.Ct. at 1120. It reiterated the dual requirements

of Brooke Group for predatory pricing claims, and noted, once

33

more, Atlantic Richfield‟s principle that “so long as [prices] . . .

are above predatory levels, they do not threaten competition.”

Id. (quoting Atl. Richfield, 495 U.S. at 340, 110 S.Ct. at 1892).15

The Supreme Court‟s decisions in the above cases require

that inferior courts recognize that in general above-cost pricing

practices are not anticompetitive and thus do not violate the

antitrust laws. Time and time again, the Court has made clear

that above-cost pricing practices generally do not threaten

competition in the marketplace. Accord Cascade Health

Solutions, 515 F.3d at 901 (observing in the context of challenge

to bundled discount program that Brooke Group and

Weyerhaeuser “strongly suggest that, in the normal case, above-

cost pricing will not be considered exclusionary conduct for

antitrust purposes”); Concord Boat, 207 F.3d at 1061 (stating in

the context of a challenge to a market-share discount program

that decisions of the Supreme Court “illustrate the general rule

that above cost discounting is not anticompetitive”); see also

Khan, 522 U.S. at 15, 118 S.Ct. at 282 (“Our interpretation of

the Sherman Act also incorporates the notion that condemnation

of practices resulting in lower prices to consumers is „especially

costly‟ because „cutting prices in order to increase business

often is the very essence of competition.”) (internal quotation

15

An equally important facet of the Court‟s decision in Linkline,

in a context quite apart from that here, was its holding that a

plaintiff may not bring a Section 2 Sherman Act price-squeeze

claim “when the defendant is under no antitrust obligation to sell

the inputs to the plaintiff in the first place.” 555 U.S. at 442,

129 S.Ct. at 1115.

34

marks and citation omitted).

As the majority notes, it is also clear that the conditional

nature of the price cuts or the fact that the prices and the

conditions were memorialized in the LTAs does not render the

precedent that I summarize above inapplicable.16

As noted, both

Atlantic Richfield and Brooke Group involved conditional

discounts of another type, namely volume rebates, and surely

inasmuch as ARCO and B&W both were sophisticated

companies that dealt in large-scale transactions, they certainly

explained these discounts and the conditions they placed on

them to the purchasers of their products whether or not they did

so in writing. In any event, the purchasers necessarily knew that

they were receiving the discounts when they were afforded

16

As noted, in the case of PACCAR‟s and International‟s

respective LTAs, Eaton provided up-front cash payments in

addition to market rebates. Although these payments were not

in the form of rebates, they cannot be distinguished from the

market-share rebates because both practices were an avenue for

Eaton ultimately to provide discounted prices to the OEMs.

Accord Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614

F.3d 57, 79 (3d Cir. 2010) (noting that tire manufacturer‟s offer

of up-front payments to race sanctioning bodies to select

manufacturer‟s tires presented no more a coercive threat than an

offer of lower prices); NicSand, Inc. v. 3M Co., 507 F.3d 442,

452 (6th Cir. 2007) (en banc) (noting that defendant‟s cash

payments to induce retailers to carry its product solely were

“nothing more than price reductions offered to the buyers”)

(internal quotation marks and citation omitted).

35

them. These cases thus make apparent that the Court‟s

reluctance to condemn above-cost pricing practices extends not

only to direct price cuts but also to conditional pricing practices

whether or not they are stated in written agreements. The

principle that above-cost pricing practices generally do not

threaten competition in the marketplace remains true whether

the plaintiff casts its claim in the verbiage of “predatory pricing”

and alleges explicitly that defendant‟s prices are too low or

whether it realizes it cannot do so because the prices were above

cost so it instead couches its challenge in the language of

exclusive dealing and attacks the agreements that offer the low

prices.

In practice, however, a defendant‟s pricing practices may

include both price and non-price elements. Further, I concur in

the majority‟s conclusion that notwithstanding the Court‟s

strong pronouncements favoring above-cost price cuts, the

Supreme Court has not held that in every case in which a

plaintiff challenges a defendant‟s pricing practices the Brooke

Group test is dispositive and the plaintiff therefore must

demonstrate that there has been below-cost pricing to succeed.

See Cascade Health Solutions, 515 F.3d at 901 (noting that “in

neither Brooke Group nor Weyerhaeuser did the Court go so far

as to hold that in every case in which a plaintiff challenges low

prices as exclusionary conduct the plaintiff must prove that

those prices were below cost”).17

But where a plaintiff contends

17

Likewise, I concur fully with the majority‟s point that a firm

may engage in anticompetitive conduct without engaging in

below-cost pricing. The antitrust laws proscribe an array of

conduct that, of course, does not require as an essential element

36

that a defendant‟s prices alone were anticompetitive, the Brooke

Group price-cost test provides the entire legal framework

necessary to evaluate that claim because the Brooke Group

price-cost test is designed to measure whether prices are

anticompetitive or not. Thus, where a plaintiff challenges a

defendant‟s pricing practices as exclusive dealing or under any

other theory of antitrust liability but in fact alleges only that the

defendant‟s prices themselves operate as the exclusionary or

anticompetitive tool, the Brooke Group test must apply and have

dispositive effect.18

My conclusions in this regard largely mirror

below-cost pricing. For example, tying arrangements, unlawful

mergers, and price-fixing agreements, to name a few, are all

practices that may violate the antitrust laws regardless of the

prices resulting from such conduct. The Supreme Court has

made clear, however, that where an antitrust plaintiff attacks a

defendant‟s pricing practices, i.e. price cuts, rebates or the like,

if those practices result in above-cost prices they generally do

not threaten competition, regardless of the source or type of

antitrust claim at issue.

18

Appellees rely heavily on LePage‟s Inc. v. 3M, 324 F.3d 141

(3d Cir. 2003) (en banc), and contend that our decision in that

case precludes the possibility that the price-cost test has any

applicability outside of the predatory-pricing-claim framework.

For essentially the same reasons the majority sets forth, I, too,

believe that LePage‟s must be confined to its facts and in any

event does not bear on the present factually-distinguishable case.

LePage‟s dealt with bundled rebates, a practice which we

analogized to tying arrangements in its exclusive potential and

37

which we concluded may exclude an equally efficient but less

diversified rival even if the bundled rebates resulted in above-

cost prices. See 324 F.3d at 155 (“The principal anticompetitive

effect of bundled rebates as offered by 3M is that when offered

by a monopolist they may foreclose portions of the market to a

potential competitor who does not manufacture an equally

diverse group of products and who therefore cannot make a

comparable offer.”). Above-cost single-product market-share

discounts, however, do not present the same putative danger of

excluding an equally efficient but less diversified rival by virtue

of that rival‟s limited production alone. For this exact reason, as

I explain in further detail below, the same leading antitrust

treatise upon which LePage‟s relied to analogize bundled

rebates to tying concludes that single-product market-share

discounts are more appropriately likened to straightforward

price cuts and the Brooke Group price-cost test should control

challenges to such programs. Thus, I concur with the majority

that our reasoning in that case necessarily is limited to a single-

product producer‟s claim that it has been excluded through a

more-diversified competitor‟s bundled rebate program that

conditioned discounts on the purchase of products that the

single-product producer did not offer.

Additionally, while I believe that LePage‟s‟ bases for

distinguishing Brooke Group stood on questionable grounds

when we set them forth nine years ago, as the majority notes the

Supreme Court‟s subsequent decisions have eviscerated those

bases and counsel that we do not extend LePage‟s beyond its

original parameters. Furthermore, in concluding that LePage‟s

must be confined to its facts, I think it appropriate to point out

38

those of the majority.

Where I part from my colleagues, however, is with their

conclusion that if a plaintiff challenges a defendant‟s pricing

that there has been considerable academic criticism of our

opinion in that case. See, e.g., J. Shahar Billbary, Predatory

Bundling and the Exclusionary Standard, 67 Wash. & Lee L.

Rev. 1231, 1246 (Fall 2010) (“[T]he main problem with the

LePage‟s test is that it does not investigate whether a bundled

discount is pro-competitive. . . . [It] may in fact protect a less

efficient competitor (as LePage‟s admitted to be.”); Richard A.

Epstein, Monopoly Dominance or Level Playing Field? The

New Antitrust Paradox, 72 U. Chi. L. Rev. 49, 49, 61-72

(Winter 2005) (criticizing LePage‟s‟ reasoning and noting that

the case “shows the deleterious consequences that flow from the

aggressive condemnation of unilateral practices”). Moreover,

another court of appeals specifically has declined to follow

LePage‟s, see Cascade Health Solutions, 515 F.3d at 903. But

perhaps most significantly, the Antitrust Modernization

Commission, a statutorily-created bipartisan group tasked with

evaluating the state of antitrust law and setting forth

recommendations to Congress and the President for its

modernization, criticized LePage‟s as potentially “harm[ing]

consumer welfare,” and proposed instead that courts adopt a

three-part test modeled after Brooke Group‟s below-cost pricing

test to evaluate the lawfulness of bundled discounts. See

Antitrust Modernization Comm‟n, Report and

Recommendations 94-99 (2007) available at

http://govinfo.library.unt.edu/amc/report_recommendation/amc_

final_report.pdf.

39

practices but contends that the non-price aspects of defendant‟s

conduct, rather than the prices themselves, constituted the

anticompetitive conduct, the price-cost test is no longer relevant.

While the Supreme Court has not held that the price-cost test is

dispositive of all claims that attack a defendant‟s pricing

practices, it is undeniable that its reasoning in the above cases

establishes that courts ought to exercise a great deal of caution

before condemning above-cost pricing practices. As the

majority notes, in the precedent recited above the plaintiffs

grounded their claims in the allegation that defendant‟s prices

would cause or had caused them harm. Yet the purpose of my

summary and my quotation of that precedent in such detail is to

bear out the fact that the Court‟s holdings rejecting the

respective plaintiffs‟ challenges in those cases were grounded in

the fundamental and broader principle that above-cost pricing

practices, even those embodied in discount and rebate programs

memorialized in written agreements, generally are not

anticompetitive and it is that point that is so critical here.

I believe that it is evident that the Supreme Court‟s

reasoning with respect to above-costs pricing applies to a

plaintiff‟s challenge to a defendant‟s pricing practices even if

the plaintiff claims that the non-price aspects of the defendant‟s

practices were the actual exclusionary tactics. Regardless of

what components of Eaton‟s rebate program that appellees

identify as the anticompetitive conduct, whether it is the prices

or the conditions that Eaton attached to those prices, the

question the jury considered at the trial and that we face on

appeal is whether Eaton‟s rebate program and conduct as a

whole was procompetitive or anticompetitive. See LePage‟s

Inc. v. 3M, 324 F.3d 141, 162 (3d Cir. 2003) (en banc) (“[T]he

40

courts must look to the monopolist‟s conduct taken as a whole

rather than considering each aspect in isolation.”) (citing Cont‟l

Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699,

82 S.Ct. 1404 (1962)). Our inquiry in that regard should be an

objective one that focuses on the facts of the program and our

answer to that question should not turn on the circumstance that

appellees had enough foresight specifically not to protest

Eaton‟s prices.19

Eaton‟s prices were, of course, the crux of the rebate

program and are an inextricable element of the LTAs. Although

appellees conveniently chose to ignore Eaton‟s prices in

formulating their claims, in light of that economic reality and the

Supreme Court‟s mandate that the inferior courts tread lightly

when asked to condemn above-cost pricing practices, the nature

of those prices must bear on the question of whether Eaton‟s

rebate program as a whole was anticompetitive or not.

Accordingly, I believe that if, as here, a plaintiff attacks both the

price-based and non-priced-based elements of a defendant‟s

pricing practices, a court should apply and give persuasive effect

to the Brooke Group price-cost test such that a firm‟s above-cost

pricing practices enjoy a presumption of lawfulness regardless

of how a plaintiff crafts its claim challenging the practices. This

approach honors the Supreme Court‟s repeated admonition that

19

In this regard I note that Eaton‟s rebate program existed in the

same form, above-cost prices and all, on the day before

appellees filed their claim as on the day after they filed their

claim. The program did not undergo an ontological

transformation because appellees had enough prudence not to

challenge the price aspects of the program.

41

above-cost pricing practices are generally procompetitive and

that inferior courts must exercise caution before condemning

such practices. Furthermore, it has the added virtue of injecting

a modicum of predictability into this muddled area of antitrust

jurisprudence. This principle is critical in this case.

I recognize, however, that as is always true with respect

to any nonconclusive presumption, there may be an exception to

the presumption of lawfulness of above-cost pricing if a plaintiff

challenging a defendant‟s above-cost pricing practices

establishes that the defendant‟s conduct as a whole was

anticompetitive notwithstanding the pricing aspect of its

conduct. In this vein, I acknowledge that, as most contracts

offering large-scale quantity discounts necessarily do, the LTAs

had other provisions besides the reduced prices themselves,

namely, the conditions Eaton attached to those reduced prices,

i.e., the market-share targets and the data book placement

provisions which appellees attack as anticompetitive. Applying

and giving persuasive effect to the Brooke Group price-cost test

would not preclude appellees from arguing that the non-price

aspects of Eaton‟s conduct were anticompetitive even in the

absence of below-cost pricing. In practice then, in a case such

as this one, the Brooke Group price-cost test would operate only

as one element, though a significant one, of a court‟s and jury‟s

inquiry under the rule of reason.

In at least implicitly recognizing the dubious footing of

an antitrust mode of analysis that hinges entirely on how a

plaintiff crafts its claim, the majority states that a plaintiff may

not escape the Brooke Group price-cost test simply by

characterizing its claim as one of exclusive dealing but it does

42

allow the plaintiff to avoid application of the test as long as the

plaintiff brings an exclusive dealing claim and contends that the

non-price aspects of the agreement offering the reduced prices

operated as the exclusionary tool. The result of the majority‟s

approach is that the strong procompetitive justifications driving

the Supreme Court‟s repeated charge that inferior courts

exercise caution before condemning above-cost pricing practices

suddenly disappear so long as the plaintiff is clever enough to

claim that the non-price aspects of the defendant‟s pricing

practices, not the prices themselves, were anticompetitive. I do

not believe that this is the result the precedent requires or

prudence counsels.

I reject the notion that a plaintiff may engage in such

legalistic maneuvering in an effort to circumvent the Supreme

Court‟s charge that a court look with a skeptical eye at attacks

on above-cost pricing practices. The non-price aspects of the

LTAs which appellees challenge, namely the market-share

targets and the data book placement provisions, and indeed the

LTAs themselves would not exist without the reduced prices

that Eaton offered as an incentive for the OEMs to enter the

agreements. Conceptually severing the conditions Eaton

attached to those prices ignores the economic realities of this

case and allows a plaintiff essentially to commandeer a court‟s

analysis through artificial distinctions.20

In concluding that the

20

Of course, the majority in effect if not intent encourages an

antitrust plaintiff challenging a defendant‟s above-cost pricing

practices simply to avoid any mention of defendant‟s prices. In

light of the majority‟s approach, it would be the rare case indeed

in which a sophisticated plaintiff would bring an exclusive

43

Brooke Group price-cost test at least must have persuasive

effect in a plaintiff‟s challenge to a defendant‟s pricing practices

regardless of how a plaintiff casts its claim, I believe it

appropriate to note that although I stand alone in this case, I

nonetheless find myself in good company. The leading antitrust

treatise, on which the majority also relies,21

concludes that

single-product market-share discounts that do not require

exclusivity as a condition of the discount are pro-competitive

and thus lawful so long as they remain above-cost. Because that

treatise cogently explains why above-cost market-share

dealing claim against a defendant‟s above-cost pricing practices

and allege that price itself functioned as the exclusionary tool

for such a claim necessarily would be ill-fated under the

majority‟s approach.

21

The majority quotes from Areeda and Hovenkamp to explain

the treatise‟s perspective that a dominant firm may employ

exclusive-dealing contracts to preclude a young rival‟s

expansion. I do not doubt the truth of this statement but as I

note above the treatise takes the position that market-share

discount programs that do not condition the discount on

exclusivity, which precisely describes Eaton‟s program, are, in

fact, not exclusive dealing contracts and should not be treated as

such. Areeda and Hovenkamp suggest that where a market-

share discount program conditions the discount on exclusivity

the standards applicable to exclusive dealing should apply. See

Fundamentals of Antitrust Law, § 18.03b, at 18-65 (“A discount

conditioned on exclusivity should generally be treated as no

different than an orthodox exclusive-dealing arrangement.”).

44

discounts are generally not anticompetitive and do not constitute

unlawful exclusive dealing, I quote it at length:

[U]nilaterally imposed quantity discounts

can foreclose the opportunities of rivals when a

dealer can obtain its best discount only by dealing

exclusively with the dominant firm. For example,

discounts might be cumulated over lengthy

periods of time, such as a calendar year, when no

obvious economies result. The effect of

continuously increasing discounts varies, but they

can resemble exclusive dealing in extreme

circumstances.

Nevertheless, quantity and market share

discounts differ from exclusive dealing in

important respects. First, the buyer need not

make any ex ante commitment of long duration to

deal with only one firm; as soon as other

advantages outweigh the discount, the buyer can

switch simply by paying the nondiscounted price.

The buyers can also switch if one or more other

sellers can match the discount. As long as the

discounted price is above cost and not predatory,

it can be matched by any equally efficient rival.

Second, the similarity to exclusive dealing

is greatest when the product in question is

fungible, with buyers indifferent to all

45

characteristics except price.[22

] If the product is

differentiated, the buyer may wish to purchase a

mixture from alternative sellers, notwithstanding

one seller‟s progressive discount. For example,

an appliance seller who has customer demand for

four brands of refrigerators is likely to stock all

four, even though the seller of one offers

progressive discounts for larger purchases.

The effective period over which a firm is

„locked up‟ by a cumulating discount may bear on

competitive effects, just as contract duration in

excluding dealing cases. . . . Discounts that are

aggregated over a longer period — say, over all

purchases made in one year — may be more

problematic. First, however, they cannot have an

anticompetitive effect greater than exclusive

dealing with one year contracts. Where there are

multiple buyers, numerous selling opportunities

will come up anew each year. Second, in the

great majority of cases they exclude much less

than the one-year exclusive dealing contract

because an aggressive rival can steal sales by

matching the cumulated discount, which will be

22

Of course, HD truck transmissions are not fungible products.

Indeed, this fact is an unstated premise of appellees‟ claims

because they contend essentially that the FreedomLine was far

superior to Eaton‟s transmissions and that its failure in the

marketplace can be attributed only to Eaton‟s anticompetitive

conduct.

46

the same as the dominant firm‟s cumulative

discount obligation. Even in such a case, single-

item discounts can be matched by an equally

efficient rival.

For single-item discounts, no matter how

measured or aggregated, injury to an equally

efficient rival seems implausible. It is perhaps

most plausible where there are a very small

number of buyers, entry barriers into the buying

market are very high, and buying requires the

making of long-term commitments. In that case,

aggressive discounting by the monopolist could

deprive a rival of most of its patronage. Even

here, however, we would hesitate to condemn a

firm for making an above-cost sale that could

readily be matched by an equally efficient rival.

Competitive injury is not plausible when there are

a large number of buyers, particularly when entry

barriers into the buying market are low. As the

First Circuit did in Barry Wright [Barry Wright

Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232

(1st Cir. 1983) (Breyer, J.)], we would test

illegality by the ordinary rules applying to

predatory pricing and allow all above-cost single

item discounts.

Given that above-cost discounts can be

matched by equally efficient rivals,

anticompetitive effects are likely only when the

large firm can offer a larger variety of products or

47

services than the smaller firm does. The most

common scenario resembles tying.

IA Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶

768b, at 148-50 (2d ed. 2000) (emphasis added).

This discussion is set forth in the treatise‟s treatment of

market-share discounts in the context of Section 2 of the

Sherman Act. However, for the same reasons recited above,

Areeda and Hovenkamp take the identical position in the context

of Section 1 Sherman Act challenges to market-share discounts:

One approach to [market-share discounts] .

. . is to treat them as exclusive dealing contracts,

with the contract period equal to the period over

which purchases can be aggregated for purposes

of measuring the size of the discount.

. . .

If exclusive dealing under equivalent

structural conditions and subject to equivalent

defenses were lawful, the discount arrangement

should be lawful as well. But the competitive

impact must in fact be less because any equally

efficient rival can take the customer by bidding a

better price and even compensating the customer

for the loss of the discount from the defendant —

assuming, as we have, that the defendant‟s

program results in above-cost prices at all

discount levels. . . . For these reasons we suggest

48

that discounts attached merely to the quantity of

good purchased, and not to exclusivity itself, be

treated as lawful, and not be subjected to the laws

of exclusive dealing.

The decisions to the contrary involve

situations where the defendant aggregates the

discount across two or more related products,

while the plaintiff produces only one or a subset

of these products.

XI Areeda & Hovenkamp, Antitrust Law ¶ 1807b2, at 132-33

(citing LePage‟s, 324 F.3d 141) (emphasis added).23

The treatise‟s reasoning as set forth above is clear and

needs little further elaboration from me. While, as noted, the

law allows a plaintiff to contend that non-price aspects of a

defendant‟s pricing practices were anticompetitive under the

rule of reason notwithstanding the defendant‟s above-cost

prices, I believe that the treatise‟s extraordinarily detailed

economic rationale for concluding that the price-cost test is

appropriate in challenges to single-product market-share

discounts show that my approach is on firm footing. See also

Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 232

(1st Cir. 1988) (Breyer, J.) (Above-cost prices do not “have a

tendency to exclude or eliminate equally efficient competitors.

Moreover, a price cut that leaves prices above incremental costs

23

As I explain below, Areeda and Hovenkamp take the position

that Section 3 does not encompass non-exclusive market-share

discount programs.

49

was probably moving prices in the „right‟ direction — towards

the competitive norm.”); Herbert Hovenkamp, Discounts and

Exclusion, 2006 Utah L. Rev. 841, 844 (2006) (“One of the

factors driving the predatory pricing rule is that, as long as

prices are above the relevant measure of cost, the discounts

cannot exclude an equally efficient rival. The same is true of

single-product discounts.”).

In sum, I reiterate that Supreme Court precedent requires

that courts exercise considerable caution before condemning

above-cost pricing practices and that in a challenge to a

defendant‟s pricing practices the Brooke Group price-cost test

should apply and be given persuasive effect regardless of

whether a plaintiff identifies non-price elements of a

defendant‟s conduct that it alleges were anticompetitive.

Having discussed this critical point, I now turn to the question of

whether under the rule of reason analysis and the standards

applicable to claims of unlawful exclusive dealing appellees

demonstrated that a jury could hold that Eaton violated the

antitrust laws notwithstanding its above-cost prices.

B. Clayton Act Section 3 and Sherman Act Section 1 Claims24

24

The majority collapses appellees‟ three claims into one

analysis, and while that approach is not necessarily incorrect and

the three provisions at issue overlap substantially, I believe it

most prudent to address the claims separately as the provisions

at issue have some distinct elements that require separate

discussion.

50

Appellees contend that the LTAs were anticompetitive

exclusive dealing arrangements in violation of Section 1 of the

Sherman Act and Section 3 of the Clayton Act. They claim that

through the LTAs “Eaton engaged in de facto exclusive dealing

agreements and other conduct that denied any other supplier the

ability to compete for even 10% of the market.” Appellees‟ br.

at 43.

In considering this argument, I start with the principle

that even explicit exclusive-dealing arrangements, which

preclude a buyer from purchasing the goods of another seller,

are not per se unlawful. See Race Tires Am., Inc. v. Hoosier

Racing Tire Corp., 614 F.3d 57, 76 (3d Cir. 2010); United States

v. Dentsply Int‟l, Inc., 399 F.3d 181, 187 (3d Cir. 2005).

Indeed, “it is widely recognized that in many circumstances

exclusive dealing arrangements may be highly efficient — to

assure supply, price stability, outlets, investment, best efforts or

the like — and pose no competitive threat at all.” Races Tires,

614 F.3d at 76 (quoting E. Food Servs., Inc. v. Pontifical

Catholic Univ. Servs. Ass‟n, Inc., 357 F.3d 1, 8 (1st Cir. 2004))

In this case, I make many more citations to the record

than judges of this Court ordinarily would make in an opinion. I

do so because while deference to the jury‟s verdict requires that

we not reweigh the evidence and that we view the evidence in

the light most favorable to appellees, where, as here, the

evidence supporting that verdict falls so short of the standard

required to sustain that verdict I believe it appropriate to point

not only to the absence of evidence supporting the jury verdict

but also to the considerable undisputed evidence contradicting

that verdict.

51

(internal brackets omitted); see also Standard Oil Co. of Calif. v.

United States, 337 U.S. 293, 306-07, 69 S.Ct. 1051, 1058-59

(1949) (listing advantages of requirements contracts to both

buyers and sellers); Omega Envtl., Inc. v. Gilbarco, Inc., 127

F.3d 1157, 1162 (9th Cir. 1997) (“There are . . . well-recognized

economic benefits to exclusive dealing arrangements, including

the enhancement of interbrand competition.”) (citation omitted).

As we stated in Race Tires, “[i]t is well established that

competition among businesses to serve as an exclusive supplier

should actually be encouraged.” 614 F.3d at 83 (citation

omitted). “[C]ompetition to be an exclusive supplier may

constitute „a vital form of rivalry, and often the most powerful

one, which the antitrust laws encourage rather than suppress.‟”

Id. at 76 (quoting Menasha Corp. v. News Am. Marketing In-

Store, Inc., 354 F.3d 661, 663 (7th Cir. 2004)). Of course,

“exclusive agreements are not exempt from antitrust scrutiny.”

Race Tires, 614 F.3d at 76. “All exclusive dealing agreements

must comply with section 1 of the Sherman Act.” Barr Labs.,

Inc. v. Abbott Labs., 978 F.2d 98, 110 (3d Cir. 1992) (citing

Am. Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1239

(3d Cir. 1975)). “Contracts for the sale of goods . . . must also

comply with the more rigorous standards of section 3 of the

Clayton Act.” Id.

While Section 3 requires that a plaintiff demonstrate that

it is “probable that performance of the contract will foreclose

competition in a substantial share of the line of commerce

affected,” Tampa Electric Co. v. Nashville Coal Co., 365 U.S.

320, 327, 81 S.Ct. 623, 628 (1961) (emphasis added), under a

Section 1 rule-of-reason case such as this case “the plaintiff

bears the initial burden of showing that the [alleged] agreement

52

produced an adverse, anticompetitive effect within the relevant

geographic market,” Burtch v. Milberg Factors, Inc., 662 F.3d

212, 222 (3d Cir. 2011) (quotations marks and citation omitted)

(emphasis added). Accordingly, if an arrangement “do[es] not

infringe upon the stiffer standards of anti-competitiveness under

the Clayton Act, . . . [it] will also be lawful under the less

restrictive provisions of the Sherman Act.” Barr Labs., 978 F.2d

at 110 (citing Am. Motor Inns, 521 F.2d at 1250); see also CDC

Techs., Inc. v. IDEXX Labs., Inc., 186 F.3d 74, 79 (2d Cir.

1999) (“The conclusion that a contract does not violate § 3 of

the Clayton Act ordinarily implies the conclusion that the

contract does not violate the Sherman Act . . . .”) (citation

omitted); Twin City Sportservice, Inc. v. Charles O. Finley &

Co., 676 F.2d 1291, 1304 n.9 (9th Cir. 1982) (“[A] greater

showing of anticompetitive effect is required to establish a

Sherman Act violation than a section 3 Clayton Act violation in

exclusive-dealing cases.”) (citation omitted).25

25

In Tampa Electric, the Court indicated that if an arrangement

is lawful under Section 3 of the Clayton Act it will be lawful

under both Sections 1 and 2 of the Sherman Act. See 365 U.S.

at 335, 81 S.Ct. at 632 (“We need not discuss the respondents‟

further contention that the contract also violates § 1 and § 2 of

the Sherman Act, for if it does not fall within the broader

proscription of § 3 of the Clayton Act it follows that it is not

forbidden by those of the former.”) (citing Times-Picayune

Publ‟g Co. v. United States, 345 U.S. 594, 608-09, 73 S.Ct. 872,

880 (1953)). In Barr Laboratories, however, we disposed of the

plaintiff‟s Section 1 Sherman Act claim with its Section 3

Clayton Act claim but we addressed the plaintiff‟s Section 2

53

To determine whether it is “probable that performance of

the contract will foreclose competition in a substantial share of

the line of commerce affected” in violation of Section 3, Tampa

Electric Co., 365 U.S. at 327, 81 S.Ct. at 628, logically a

plaintiff first must establish the share of the market, expressed in

a percentage, in which the exclusive dealing arrangement

forecloses competition. As the Court of Appeals for the District

of Columbia Circuit stated in one of the more notable antitrust

cases of the recent past, “[t]hough what is „significant‟ may vary

depending upon the antitrust provision under which an exclusive

deal is challenged, it is clear that in all cases the plaintiff must

both define the relevant market and prove the degree of

foreclosure.” United States v. Microsoft Corp., 253 F.3d 34, 69

(D.C. Cir. 2001); see also Stop & Shop Supermarket Co. v. Blue

Cross & Blue Shield of R.I., 373 F.3d 57, 66 (1st Cir. 2004)

(“For the exclusive dealing contract, the first step would be [for

plaintiff] to show the extent of foreclosure resulting from the . . .

contract . . . .”); R.J. Reynolds Tobacco Co. v. Philip Morris

Inc., 199 F. Supp. 2d 362, 388 (M.D.N.C. 2002), aff‟d, 67 F.

App‟x 810 (4th Cir. 2003) (“A plaintiff makes out a prima facie

case of substantial foreclosure by demonstrating first that a

Sherman Act claim separately. See 978 F.2d at 110-12; see also

Dentsply, 399 F.3d at 197 (concluding that the district court

erred in stating that defendant had not violated Section 2 of the

Sherman Act solely because it had concluded that defendant had

not violated Section 3 of the Clayton Act) (citing LePage‟s, 324

F.3d at 157 n.10). For this reason, I subsume appellees‟ Section

1 Sherman Act claim within its Section 3 claim but I address

separately appellees‟ Section 2 Sherman Act claim.

54

significant percentage of the relevant market is foreclosed by the

provision challenged.”).

“The share of the market foreclosed is important because,

for the contract to have an adverse effect upon competition, „the

opportunities for other traders to enter into or remain in that

market must be significantly limited.‟” Microsoft Corp., 253

F.3d at 69 (quoting Tampa Elec. Co., 365 U.S. at 328, 81 S.Ct.

at 628-29); see also Jefferson Parish Hosp. Dist. No. 2 v. Hyde,

466 U.S. 2, 45, 104 S.Ct. 1551, 1576 (1984) (O‟Connor, J.,

concurring) (“Exclusive dealing is an unreasonable restraint on

trade [under Section 1 of the Sherman Act] only when a

significant fraction of buyers or sellers are frozen out of a

market by the exclusive deal.”) (citation omitted); Chuck‟s Feed

& Seed Co. v. Ralston Purina Co., 810 F.2d 1289, 1294 (4th Cir.

1987) (“[T]he courts‟ focus in evaluating exclusive dealing

arrangements should be on their effect in shutting out competing

manufacturers‟ brands from the relevant market.”); Perington

Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369, 1374

(10th Cir. 1979) (“[A] complaining trader [challenging an

exclusive-dealing arrangement] must allege and prove that a

particular arrangement unreasonably restricts the opportunities

of the seller‟s competitors to market their product.”) (citation

omitted). Thus, “[f]ollowing Tampa Electric, courts considering

antitrust challenges to exclusive contracts have taken care to

identify the share of the market foreclosed.” Microsoft Corp.,

253 F.3d at 69 (citation omitted); see also E.I. du Pont de

Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 451 (4th

Cir. 2011) (noting that “the requirement of a significant degree

of foreclosure serves a useful screening function”) (internal

quotation marks and citation omitted).

55

Nevertheless, the antitrust laws tolerate some degree of

market foreclosure; Section 3 only condemns an agreement

where the foreclosure represents a substantial share of the

market. See Standard Fashion Co. v. Magrane Houston Co., 258

U.S. 346, 357, 42 S.Ct. 360, 362 (1922) (“That . . . [Section 3]

was not intended to reach every remote lessening of competition

is shown in the requirement that such lessening must be

substantial.”). Thus, once the plaintiff demonstrates the portion

of the market the exclusive-dealing arrangement forecloses, the

court must ask whether that level of preemption constitutes a

“substantial” share of the market. See Tampa Elec. Co., 365

U.S. at 328, 81 S.Ct. at 628 (In a Section 3 case, the Court must

consider the degree of market foreclosure and “the competition

foreclosed by the contract must be found to constitute a

substantial share of the relevant market.”). There is no fixed

percentage at which foreclosure becomes “substantial” and

courts have varied widely in the degree of foreclosure they

consider unlawful. See R.J. Reynolds Tobacco Co., 199 F.

Supp. 2d at 388 (collecting cases and noting that “[c]ourts have

condemned provisions involving foreclosure as low as 24%

while provisions involving foreclosure as high as 50% have

been upheld”) (citations omitted).

Under Tampa Electric, however, “the degree of market

foreclosure is only one of the factors involved in determining

the legality of an exclusive dealing arrangement.” Barr Labs.,

978 F.2d at 111 (citation omitted). Indeed, while a negligible

degree of foreclosure “makes dismissal easy,” a high degree of

market foreclosure does not “automatically condemn” an

exclusive-dealing arrangement. Stop & Shop Supermarket, 373

F.3d at 68. Rather, once a plaintiff identifies the degree of

56

market foreclosure, to determine whether that preemption is

“substantial,” a court considers not only the quantitative aspect

of the foreclosure but also the qualitative conditions of the

particular market, such as “the relative strength of the parties,

the proportionate volume of commerce involved in relation to

the total volume of commerce in the relevant market area,” and

the effect “preemption of that share of the market might have on

effective competition therein.” Tampa Elec. Co., 365 U.S. at

329, 81 S.Ct. at 629; see also Barr Labs., 978 F.2d at 111.

Courts employing Tampa Electric‟s market analysis also

consider the duration of the agreement, the ease of its

terminability, the height of any entry barriers, alternative outlets

competitors may employ to sell their product, and the buyer‟s

and seller‟s business justifications for the arrangement. See

Concord Boat, 207 F.3d at 1059; Omega Envtl., 127 F.3d at

1163-65; Barr Labs., 978 F.2d at 111; Barry Wright Corp, 724

F.2d at 236-37; R.J. Reynolds Tobacco Co., 199 F. Supp. 2d at

389; see also XI Areeda & Hovenkamp, Antitrust Law ¶ 1821d,

at 183-88.26

26

In substance, the Tampa Electric standard for Clayton Act

Section 3 claims differs very marginally, if at all, from the fact-

intensive rule-of-reason analysis that applies to this case under

Section 1 of the Sherman Act. Cf. Deutscher Tennis Bund v.

ATP Tour, Inc., 610 F.3d 820, 830 (3d Cir. 2010) (“The rule of

reason requires the fact-finder to weigh [] all of the

circumstances of a case in deciding whether a restrictive practice

should be prohibited as imposing an unreasonable restraint on

competition. The inquiry is whether the restraint at issue is one

that promotes competition or one that suppresses competition.”)

57

In considering whether Eaton‟s conduct violated Section

3, I note first that it is undisputed that the LTAs were not by

their terms exclusive-dealing contracts. The LTAs did not

require the OEMs to purchase any amount, much less all, of

their transmission needs from Eaton, and they did not preclude

the OEMs from purchasing transmissions from appellees or any

other manufacturer. Additionally, the LTAs did not condition

the rebates on the OEMs‟ purchase of 100% of their

transmission needs from Eaton.

In the past, we have expressed doubt as to whether an

agreement involving less than all of a customer‟s purchases even

falls within the ambit of Section 3. See Barr Labs., 978 F.2d at

110 n.24 (“An agreement affecting less than all purchases does

not amount to true exclusive dealing.”) (citation omitted); see

also W. Parcel Express v. United Parcel Serv. of Am., Inc., 190

(quotation marks and citations omitted). Indeed, it appears more

often than not that in a Section 1 case courts explicitly employ

the Tampa Electric standard as the guiding framework for the

rule-of-reason analysis. See, e.g. Allied Orthopedic Appliances

Inc. v. Tyco Health Care Grp., 592 F.3d 991, 996 (9th Cir. 2010)

(“Under the antitrust rule of reason, an exclusive dealing

arrangement violates Section 1 only if its effect is to „foreclose

competition in a substantial share of the line of commerce

affected.‟”) (quoting Omega Envtl., 127 F.3d at 1162); see also

Jefferson Parish, 466 U.S. at 45, 104 S.Ct. at 1575 (O‟Connor,

J., concurring) (“Exclusive dealing arrangements are

independently subject to scrutiny under § 1 of the Sherman Act,

and are also analyzed under the Rule of Reason.”) (citing Tampa

Elec. Co., 365 U.S. at 333-35, 81 S.Ct. at 631-32).

58

F.3d 974, 976 (9th Cir. 1999) (concluding that because volume

discount contracts did “not preclude consumers from using other

delivery services, they [we]re not exclusive dealing contracts

that preclude[d] competition”); Magnus Petroleum Co., v. Skelly

Oil Co., 599 F.2d 196, 200 (7th Cir. 1979) (“Because the

agreements contained no exclusive dealing clause and did not

require plaintiffs to purchase any amounts of gasoline that even

approached their requirements, they did not violate Section 3 of

the Clayton Act.”) (citations omitted).

Indeed, Section 3 explicitly applies only to those

agreements entered into “on the condition, agreement, or

understanding that the lessee or purchaser . . . shall not use or

deal in the goods . . . of a competitor.” 15 U.S.C. § 14; see also

Standard Fashion Co., 258 U.S. at 356, 42 S.Ct. at 362 (Section

3 “deals with consequences to follow the making of the

restrictive covenant limiting the right of the purchaser to deal in

the goods of the seller only.”).27

I doubt whether a market-share

27

Section 1 of the Sherman Act, which proscribes “[e]very

contract, combination in the form of trust or otherwise, or

conspiracy, in restraint of trade or commerce,” 15 U.S.C. § 1

and Section 2 of the Sherman Act, which proscribes the

monopolization or attempted monopolization of trade or

commerce, 15 U.S.C. § 2, do not contain Section 3‟s “on the

condition” language. Accordingly, the LTAs fall within the

theoretical reach of those provisions. Nevertheless, appellees‟

Section 1 and 2 claims fail because appellees did not introduce

sufficient evidence from which a jury could infer that the LTAs

were exclusive dealing contracts that foreclosed competition in

the marketplace.

59

discount program of the type here, which does not preclude the

buyer from dealing in the goods of others and does not even

condition the rebate on exclusivity, falls within the statutory

reach of that provision. See IIIA Areeda & Hovenkamp,

Antitrust Law ¶ 768, at 148 n.26 (noting that “only the Sherman

Act applies” to a claim that a market-share discount amounts to

exclusive dealing because “[w]hile § 3 of the Clayton Act, 15

U.S.C. § 14, expressly covers the seller who offers a „discount

from, or rebate upon‟ a sale in exchange for a promise not to

deal with others, that is not the same thing as a quantity or

market share discount, in which the buyer makes no promise not

to deal with others”).28

The majority bypasses this obstacle to appellees‟ success

by stating that a plaintiff‟s allegation that a contract lacking an

express exclusivity requirement nonetheless establishes an

unlawful de facto exclusive dealing program sets forth a

28

In fact, even if the LTAs had required the OEMs to purchase a

certain share but not all of their transmissions needs from Eaton,

as the majority interprets them to do, it is still unclear whether

Section 3 would have reached that agreement. See Areeda &

Hovenkamp, Fundamentals of Antitrust Law § 18.01c, at 18-17

(“Literally, a „partial‟ exclusive dealing requirement appears not

to be covered by § 3 of the Clayton Act at all. For example, if A

requires B to purchase „at least 60 percent‟ of its gasoline needs

from A, B is still free to purchase the remaining 40 percent

elsewhere. As a result, there is no condition that B not deal in

the goods of a competitor, as the statute requires. Most of the

courts take this position.”) (citations omitted).

60

cognizable antitrust claim. In doing so, the majority also

concludes that Section 3 encompasses contracts that require

partial exclusivity.

The notion of de facto exclusive dealing has its roots in

United Shoe Machinery Corp. v. United States, 258 U.S. 451,

457, 42 S.Ct. 363, 365 (1922), in which the Court held that a

contract lacking an express agreement not to use the goods of a

competitor falls within the ambit of Section 3 if “the practical

effect is to prevent such use.” As noted, the majority appears to

interpret this statement as meaning that a contract that has the

effect of causing the purchaser to buy most of its needs from one

seller falls within Section 3 because it induces near-exclusivity.

I disagree with this interpretation and believe instead that United

Shoe and its “practical effect” standard stands for the

proposition that a contract that is not facially exclusive may

nonetheless fall within the ambit of Section 3 if, in the

implementation of its terms, it induces actual exclusivity.

In United Shoe, the Court condemned as unlawful

exclusive dealing a lease that included, among other things, a

forfeiture provision to the effect that if the lessee failed to use

exclusively machinery of certain kinds made by the lessor, the

lessor had the right to cancel the lessee‟s right to use all such

machinery, a provision that the lessee would not use the

machinery on products that had not received particular

operations upon certain of other lessor‟s machines, and a clause

that required the lessee to purchase its supplies exclusively from

the lessor. See id. at 456-57, 42 S.Ct. at 365. Lessees who used

the lessor‟s competitors‟ machines in violation of the terms of

the leases “had their attention called to the forfeiture provisions

61

in the leases, which was understood, by many of the lessees, as

warnings, in the nature of threats, that unless discontinued these

covenants of the leases would be enforced.” United States v.

United Shoe Mach. Co., 264 F. 138, 145 (D.C. Mo. 1920).

These provisions, which the Court noted amounted in reality to

“tying agreements,” fell within the scope of Section 3 because

they “effectually prevent[ed] the lessee from acquiring the

machinery of a competitor of the lessor, except at the risk of

forfeiting the right to use the machines furnished by the

[lessor].” 258 U.S. at 457-58, 42 S.Ct. at 365. Thus, in practice,

the lease induced actual, total exclusivity. Subsequent cases

relying on United Shoe‟s "practical effect” formulation bear the

point out.

In International Business Machines Corp. v. United

States, 298 U.S. 131, 135, 56 S.Ct. 701, 703 (1936), the Court,

relying on United Shoe, concluded that a lease for tabulating

machines that required the lessee to use only the tabulating cards

of the lessor on its machines fell within Section 3 because in

practice it required the exclusive use of the lessor‟s cards. The

Court explained that while “the condition is not in so many

words against the use of the cards of a competitor, but is

affirmative in form, that the lessee shall use only appellant‟s

cards in the leased machines,” because “the lessee can make no

use of the cards except with the leased machines, and the

specified use of appellant‟s cards precludes the use of the cards

of any competitor, the condition operates [to prohibit the use of

the cards of a competitor] in the manner forbidden by” Section 3

of the Clayton Act. Id. (citing United Shoe, 258 U.S. at 458, 42

S.Ct. at 365); but see FTC v. Sinclair Refining Co., 261 U.S.

463, 474, 43 S.Ct. 450, 453 (1923) (distinguishing United Shoe

62

and concluding that contract that required lessee of gasoline

pumps not to use competitor‟s gasoline in lessor‟s pumps did not

fall within Section 3 because the contract did not contain a

provision “which obligate[d] the lessee not to sell the goods of

another,” and “[t]he lessee [wa]s free to buy [pumps] wherever

he cho[se]”). Similarly, in Standard Oil, the Court assumed that

Section 3 encompassed “[e]xclusive supply contracts” that the

defendant had entered with its dealers, in which the dealer

promised “to purchase from Standard all his requirements of one

or more products.”29

337 U.S. at 295-96, 69 S.Ct. at 1054.

Accordingly, while Section 3 encompasses agreements

that do not contain express exclusivity provisions but in reality

induce actual exclusivity, it does not, as the majority seems to

believe, encompass agreements that do not contain express

exclusivity provisions and do not induce actual exclusivity.30

29

In Tampa Electric, the case most often cited for the “practical

effect” standard, the Court considered a challenge to a

requirements contract and “assume[d], but d[id] not decide, that

the contract [wa]s an exclusive-dealing arrangement within the

compass of § 3.” 365 U.S. at 330, 81 S.Ct. at 629.

30LePage‟s and Dentsply, cases on which the majority relies, are

not to the contrary. Those cases dealt not with Section 3 of the

Clayton Act but rather with Section 2 of the Sherman Act, which

does not contain the same restrictive “on the condition”

language as Section 3. Furthermore, in LePage‟s, we concluded

that 3M‟s bundled rebate agreements constituted unlawful de

facto exclusive dealing arrangements because LePage‟s

“introduced powerful evidence” that its prior customers refused

63

Here, not only did the LTAs lack any provision imposing a ban

on the OEMs‟ purchase of Eaton‟s competitors‟ products, they

did not contain a provision amounting to or having the effect of

imposing such a ban. Moreover, the evidence adduced at the

trial demonstrates that the LTAs actually did not induce de facto

total exclusivity on the part of the OEMs. As noted, from July

2000 to October 2003, ZFM‟s share of the HD transmission

market ranged between 8% and 14%. Thus, the majority, in

interpreting the scope of Section 3 to encompass an agreement

which neither explicitly forbids nor has the effect of precluding

the OEMs from purchasing Eaton‟s competitors‟ products, has

expanded the scope of Section 3 greatly beyond its intent.

Section 3 only encompasses agreements that explicitly forbid or

have the practical effect of precluding one party from using the

goods of another. Nevertheless, despite my serious misgivings

on this threshold exclusive-dealing issue, which could justify

terminating this discussion now and thus reversing the District

Court‟s denial of judgment as a matter of law as to appellees‟

Section 3 Clayton Act claim, I will assume that the LTAs fall

to meet with LePage‟s‟ sales representatives, refused to discuss

purchasing LePage‟s products for “the next three years,” and

3M offered bonus rebates to its customers upon achieving sole-

supplier status. 324 F.3d at 158. And in Dentsply, we

concluded that a provision that Dentsply imposed on its dealers

that actually prohibited the dealers from adding its competitors‟

tooth lines as part of their product offering amounted to

exclusive dealing. 399 F.3d at 193. Here, as explained below,

appellees fell woefully short of introducing evidence that the

LTAs induced anything approaching actual exclusivity.

64

within the theoretical reach of Section 3 and proceed to analyze

the LTAs under that provision. My analysis, however, does not

get very far before it becomes readily apparent that this

fundamental flaw in appellees‟ case — that the LTAs were not,

in fact, exclusive-dealing contracts — is fatal to their claim.

As noted above, under Tampa Electric a plaintiff first

must identify the degree of market foreclosure. Despite a

lengthy trial in the District Court, which has resulted in the

creation of a nine-volume joint appendix and extensive briefing

on this appeal, appellees do not identify clearly for us the precise

degree of market foreclosure attributable to the LTAs. The

majority, however, attempts to make up for appellees‟

deficiency in this regard by stating that appellees‟ expert, Dr.

David DeRamus, testified that the LTAs left only 15% of the

market remaining to Eaton‟s competitors, or stated another way,

that the LTAs foreclosed competition in 85% of the market. In

reality, however, Dr. DeRamus did not testify that the LTAs

foreclosed competition in 85% of the market. The testimony on

which the majority apparently relies for that figure deals not

with Dr. DeRamus‟ opinion as to the extent to which the LTAs

foreclosed competition in the HD truck transmission market but

rather with Dr. DeRamus‟ calculation of Eaton‟s market share

during the relevant time period in the context of his

determination as to whether Eaton had monopoly power. See

J.A. at 722 (Dr. DeRamus‟ testimony) (explaining the steps he

took to ascertain whether “Eaton has monopoly power in the[] . .

. [NAFTA HD truck transmission market”); see also J.A. at

4758, 4760 (Dr. DeRamus‟ expert report) (setting forth the data

reflecting Eaton‟s market share). I think it obvious that the

inquiry into Eaton‟s market share is a question separate and

65

apart from the LTAs‟ alleged foreclosure effect31

and that we

may not simply borrow Dr. DeRamus‟ testimony as to Eaton‟s

market share to adduce evidence of the LTAs‟ foreclosure

effect.

In point of fact, Dr. DeRamus aimed much higher with

his estimation of the LTAs‟ alleged foreclosure effect by stating

explicitly in his expert report that “Eaton‟s exclusionary

agreements with all four of the heavy-duty truck OEMs — the

only significant manufacturers of heavy-duty trucks in the

relevant geographic markets at issue in this case — foreclosed

nearly 100 percent of the North American market or markets for

HD [t]ransmissions.” J.A. at 4814 (Dr. DeRamus‟ expert

report). Dr. DeRamus arrived at this foreclosure percentage on

the basis of the market-share targets the LTAs required for the

31

See, e.g., Barry Wright Corp., 724 F.2d at 229, 237 (observing

that potential foreclosure effect of volume discount

requirements contract between manufacturer, who had 83% to

94% market share, and purchaser of mechanical snubbers was

50% where purchaser‟s snubber purchases represented 50% of

snubber market). The distinction between these two inquiries,

the question of Eaton‟s market share and the question of the

LTAs‟ alleged foreclosure effect, is particularly critical in a case

such as this one since prior to 1989 Eaton was the only HD

transmission manufacturer and thus possessed 100% market

share at a time before appellees contend that it engaged in any

alleged anticompetitive conduct.

66

OEMs to receive the rebates.32

In denying Eaton judgment as a matter of law, the

District Court took a similar view that reliance on the market-

share targets was an appropriate method to ascertain the LTAs‟

foreclosure effect, concluding that there was sufficient evidence

“that the contracts foreclosed a substantial share of the market”

not because ZFM identified a specific foreclosure percentage

but because “each OEM was required to order 80% or more of

its transmissions from” Eaton to receive the rebates. ZF

Meritor, 769 F. Supp. 2d at 692.33

While the majority‟s reliance

on Dr. DeRamus‟ testimony regarding Eaton‟s market share to

ascertain the LTAs‟ foreclosure effect is mistaken, it is clear that

the majority likewise ultimately concludes that the market-share

32

Although Dr. DeRamus did not set forth explicitly in his

expert report how he arrived at his foreclosure percentage or his

arithmetic in that regard — a shocking oversight in a case that

hinges on this very question — his testimony at trial illuminates

that he relied on the market-share targets to arrive at his

estimation of the LTAs‟ foreclosure effect, though notably he

testified as to a different foreclosure percentage than that which

he set forth in his report. See J.A. at 858 (Dr. DeRamus‟

testimony) (explaining that he arrived at his opinion of the

LTAs‟ foreclosure effect by relying on the market-share targets

and opining that one could take a “simple average” of the

market-share targets to yield a 90% foreclosure rate).

33

The District Court‟s statement in this regard was inaccurate as

Volvo‟s LTA granted it rebates beginning at a 65% market-

share target.

67

targets may serve as a measure of the LTAs‟ foreclosure effect.

For several reasons, however, the market-share targets do not

reflect the LTAs‟ foreclosure effect, and, on this point, I find

that the Court of Appeals for the Ninth Circuit‟s and the Court

of Appeals for the Eighth Circuit‟s treatment of Sherman Act

Section 1 challenges to non-exclusive market-share discount

programs are instructive.

In Allied Orthopedic Appliances Inc. v. Tyco Health Care

Group, 592 F.3d 991, 994-96 (9th Cir. 2010), a group of

hospitals and health care providers alleged, among other things,

that Tyco, a monopolist in the U.S. pulse oximetry sensor

market, unlawfully foreclosed competition in the market in

contravention of Section 1 of the Sherman Act through its offer

of market-share discounts. As here, the market-share

agreements provided discounts conditioned on the customers‟

purchase of a certain percentage of the product in issue, i.e.,

pulse oximetry sensors, from Tyco, the discount increasing with

Tyco‟s increasing market share. “The agreements did not

contractually obligate Tyco‟s customers to buy anything from

Tyco . . . and [t]he only consequence of purchasing less than the

agreed upon percentage of Tyco‟s products was loss of the

negotiated discounts.” Id. at 995.

The court of appeals concluded that the agreements did

not foreclose competition in violation of Section 1 because the

agreements did not require Tyco‟s customers to purchase

anything from Tyco and because “[a]ny customer subject to one

of Tyco‟s market-share discount agreements could choose at

anytime to forego the discount offered by Tyco and purchase

68

from a generic competitor.” Id. at 997.34

Thus, Tyco‟s

competitors “remained able to compete for Tyco‟s customers by

offering their products at better prices.” Id. at 998.

The Court of Appeals for the Eighth Circuit took a

similar view of market-share discount agreements in Concord

Boat. In that case, a group of boat builders that sold boats to

dealers alleged that Brunswick, the market leader in the

manufacture of stern drive engines, violated Section 1 through

its offer of market-share discount agreements with the builders

and dealers. The agreements offered reduced prices conditioned

on market-share targets of 60% to 80%. See 207 F.3d at 1044.35

As is true here with respect to the product in issue, none of

Brunswick‟s programs “obligated boat builders and dealers to

purchase engines from Brunswick, and none of the programs

restricted the ability of builders and dealers to purchase engines

from other engine manufacturers.” Id. at 1045.

The court employed the standards of Tampa Electric to

conclude that the plaintiffs had “failed to produce sufficient

evidence to demonstrate that Brunswick had foreclosed a

34

The court also found significant the plaintiffs‟ expert failure to

explain why “price-sensitive hospitals would adhere to Tyco‟s

market-share agreements when they could purchase less

expensive generic sensors instead.” 592 F.3d at 997.

35

The plaintiffs also alleged that Brunswick had violated Section

7 of the Clayton Act and Section 2 of the Sherman Act, but the

court likewise rejected these claims. See 207 F.3d at 1043,

1053, 1062.

69

substantial share of the . . . market through anticompetitive

conduct” and failed to show that “Brunswick‟s discount

program was in any way exclusive” in violation of Section 1.

Id. at 1059. The court reached that conclusion because the

builders were “free to walk away from the discounts at any

time,” and “Brunswick‟s discounts, because they were

significantly above cost, left ample room for new competitors . .

. to enter the engine manufacturing market and to lure customers

away by offering superior discounts.” Id.; see also Se. Mo.

Hosp. v. C.R. Bard, Inc., 642 F.3d 608, 612-13 (8th Cir. 2011)

(rejecting Sherman Sections 1 and 2 and Clayton Section 3

challenge to market-share discount program on the basis of

Concord Boat where customers “were not required to purchase

100 percent of their . . . needs from . . . [defendant] or to refrain

from purchasing from competitors” or indeed to purchase

“anything from . . . [defendant]”); Stitt Spark Plug Co. v.

Champion Spark Plug Co., 840 F.2d 1253, 1258 (5th Cir. 1988)

(affirming district court‟s directed verdict in favor of defendant

on Section 1 and Section 3 claims where plaintiff “proved no

instance in which a distributor honored an exclusive dealing

arrangement by refusing to purchase . . . [plaintiff‟s] plugs, . . .

there was no testimony that any distributor agreed to refrain

from selling competing plugs for any specific period of time, . . .

[and] [t]here was no evidence that a distributor who failed to

abide by the agreement would be subject to any sanction”).

As was true of the contracts at issue in Allied Orthopedic

and Concord Boat with respect to what are suggested to be,

wrongly in my view, mandatory purchase obligations, the LTAs

did not obligate the OEMs to purchase anything from Eaton,

much less 100% of their transmission needs, nor did they

70

preclude the OEMs from purchasing transmissions from any

other manufacturer. Rather, the agreements provided for

increasing rebates and thus lower prices based on the percentage

of an OEM‟s transmission needs that it purchased from Eaton.

In such a circumstance, the LTAs did not foreclose competition

in any share of the market because Eaton‟s competitors were

able to compete for this business as the OEMs were at liberty to

walk away from the LTAs at any time.

Indeed, this point is precisely where the Brooke Group

price-cost test comes into play. In a situation such as this one,

where the contract in terms is not exclusive and merely provides

discounted but above-cost prices conditioned upon a market-

share target, any equally efficient competitor, including ZFM, if

it was an equally efficient competitor, had an ongoing

opportunity to offer competitive discounts to capture the OEMs‟

business. If Eaton‟s discounts had resulted in prices that were

below-cost, a charge that appellees do not make, then even an

equally-efficient competitor might not have the opportunity to

compete for the business the LTAs covered and thus it could be

said that competition was foreclosed in that share of the market

notwithstanding the non-obligatory and non-exclusive nature of

the LTAs. But we do not need to address that unlikely

circumstance because Eaton‟s discounts resulted in prices that

were above-cost and thus the LTAs “left ample room” for ZFM

or new competitors to enter the market and “to lure customers

away by offering superior discounts.” Concord Boat, 207 F.3d

at 1059. As in Allied Orthopedic, “[t]he market-share discount

agreements at issue here did not foreclose . . . [Eaton‟s]

customers from competition because „a competing manufacturer

need[ed] only offer a better product or a better deal to acquire

71

their [business].‟” 592 F.3d at 997 (quoting Omega, 127 F.3d at

1164); see also Areeda & Hovenkamp, Antitrust Law ¶ 768b, at

148-50 (concluding that above-cost market-share discounts do

not exclude equally efficient rivals because “[a]s long as the

discounted price is above cost and not predatory, it can be

matched by any equally efficient rival”). Absent evidence that

notwithstanding the above-cost prices of the LTAs the non-price

aspects of the LTAs rendered them anticompetitive, we should

conclude that as a matter of law Eaton‟s LTAs were not

anticompetitive.

The majority dismisses as inapplicable the reasoning of

Allied Orthopedic and Concord Boat by stating that “this is not a

case in which the defendant‟s low price was the clear driving

force behind the customer‟s compliance with purchase targets,

and the customers were free to walk away if a competitor

offered a better price.” Typescript at 33. But the reality is to the

contrary as the testimony I have summarized establishes it is

precisely the case that Eaton‟s low prices led the OEMs to enter

the LTAs and to strive to meet the market-share targets.

Likewise, it is clearly the case that the OEMs were free to walk

away from the market-share rebates the LTAs offered at any

time. In attempting to overcome this crucial defect in appellees‟

claim and concluding that notwithstanding the LTAs‟ terms the

LTAs were in fact mandatory agreements to which the OEMs

were beholden against their will the majority sets forth two

justifications.

First, the majority downplays the possibility that ZFM

could “steal” Eaton‟s customers by offering a superior product

or lower price because that possibility did not “prove[] to be

72

realistic.” Typescript at 47. In other words, the majority

appears to assume that because ZFM did not lure away Eaton‟s

customers through offering superior products or lower prices, it

could not have done so and the reason for its inability to do so

was the LTAs. I find the majority‟s treatment of this point to be

an unpersuasive answer to the logic of Allied Orthopedic and

Concord Boat.

I hardly need make the logical point that one cannot

assume that because an event did not happen it could not have

happened. It appears that ZFM did not lure away Eaton‟s

customers. That does not mean, however, that ZFM was

incapable of doing so. It is beyond dispute and indeed a central

point to this case that ZFM did not offer lower prices than

Eaton‟s prices and ZFM did not develop a full product line as it

knew it had to do in order to compete effectively with Eaton.36

36

The majority states, without elaboration, that Eaton assured

that there would be no other supplier that could fulfill the

OEMs‟ needs or offer a lower price. I note first that it is an

undisputed fact that when Meritor entered into the joint venture

with ZF AG at a time prior to any allegation of anticompetitive

conduct by Eaton, Meritor did not offer a full product line of

HD truck transmissions. Thereafter, ZFM explicitly identified

its lack of a full product line as a barrier to its market success

and yet it did not develop a full product line. There is no

evidence that Eaton somehow prevented either Meritor or later

ZFM from developing a full product line. Furthermore, there is

no evidence in the record indicating that Eaton prevented ZFM

from offering more attractive discounts to capture Eaton‟s

business and there is no evidence that other firms tried to enter

73

In other words, ZFM did not even engage in the type of

competitive conduct that potentially could have lured away

Eaton‟s customers. Thus, we cannot say that it is not realistic to

think that if it had engaged in that competition conduct ZFM

could have been successful.37

the HD truck transmission market but were thwarted by Eaton. 37I recognize that appellees contend that “[f]ar from offering

low prices to seek competitive advantages . . . Eaton broke the

price mechanism, so that ZFM could not compete even by

offering discounts or other incentives notwithstanding that ZFM

had a better product.” Appellees‟ br. at 44. But appellees‟

assessment of their product does not establish that the truck

purchasers — the entities that actually made the ultimate

decision as to which transmission to select for their trucks —

would make the same assessment. Indeed, some of the evidence

suggests that both OEMs and truck purchasers held the opinion

that overall Meritor‟s products were inferior to Eaton‟s, and

Meritor does not point to evidence foreclosing the possibility

that its relatively unfavorable reputation in that regard persisted

despite the emergence of ZF Meritor and thereby tainted truck

purchasers‟ view of the FreedomLine. Moreover, even if the

truck purchasers had come to the same conclusion as appellees

regarding the FreedomLine‟s technical superiority, appellees‟

complaint holds no force as the purchasers‟ were at all times

free to act on that opinion by selecting the FreedomLine for their

trucks. Nevertheless, it is clear from the record that other

factors beyond possible technical superiority, including such

considerations as price, service, and availability of the product,

74

Second, the majority attempts to overcome this absolutely

fundamental defect in appellees‟ case by concluding that

notwithstanding the fact that the LTAs were not by their terms

mandatory and the fact that Eaton‟s prices after consideration of

the rebates were at all times above-cost such that appellees, were

they equally efficient competitors, could have matched them,

there nevertheless was sufficient evidence that the LTAs

foreclosed competition in a substantial share of the HD truck

transmission market because “the targets were as effective as

mandatory purchase requirements.” Typescript at 42. In this

regard, the majority reasons that “[c]ritically, due to Eaton‟s

position as the dominant supplier no OEM could satisfy

customer demand without at least some Eaton products, and

therefore no OEM could afford to lose Eaton as a supplier.” Id.

at 43. Therefore, the majority reasons, “a jury could have

concluded that, under the circumstances, the market penetration

targets were as effective as express purchase requirements

because no risk averse business would jeopardize its relationship

could motivate a purchaser in making its decision as to the most

advantageous transmission for it to purchase. Lest this fact be

doubted I merely need to point out that consumers regularly

purchase inexpensive automobiles even though more highly-

priced automobiles might be technically better. Overall, the

point remains that if ZFM was an equally efficient competitor

the LTAs simply did not preclude it from competing with Eaton

and did not foreclose competition in any portion of the market,

and thus a jury verdict based on a contrary conclusion simply

could not survive Eaton‟s motion for judgment as a matter of

law.

75

with the largest manufacturer of transmissions in the market.”

Id. (internal quotation marks and citation omitted).

Undoubtedly, there is evidence in the record that the

OEMs required Eaton‟s products, to the end that an OEM could

not have afforded to lose Eaton as a supplier. However, there is

not a scintilla of evidence that if an OEM did not meet its LTA‟s

market-share target Eaton would have refused to supply it with

transmissions. First, as the majority notes, only the Freightliner

LTA and the Volvo LTA granted Eaton the right to terminate

the LTA altogether if the OEM did not meet its market-share

targets. Yet the fact that Eaton had the right to terminate those

LTAs if those OEMs did not meet their targets — notably, a

right that it did not exercise when Freightliner failed to achieve

the market-share target in 2002 — is no more significant than

the fact that Eaton would not have to pay the rebate if

Freightliner did not meet the target. Termination of the LTA

simply made unavailable the rebates to those OEMs; it did not,

as the majority implies, mean that Eaton no longer would

provide transmissions to those OEMs. It simply meant that

those OEMs would not receive Eaton‟s transmissions at the

discounted prices the LTAs offered.

I understand that the LTAs are supply agreements that

ensure that Eaton will meet the OEMs‟ transmission needs and

do so at a certain price and under certain conditions, and an

OEM lacking a supply agreement may be in an unfavorable

position as it would prefer a supply agreement to set the terms of

its relationship with Eaton. Nevertheless, although an OEM

with a cancelled LTA would have lacked a supply agreement

with Eaton, at least temporarily, one cannot infer from that fact

76

that Eaton would not have supplied the OEM with its

transmissions. Furthermore, the majority glosses over the fact

that PACCAR‟s and International‟s LTAs did not include a

provision granting Eaton the right to terminate the LTAs if those

OEMs did not meet their respective market-share targets.

Nevertheless, regardless of whether the LTAs granted

Eaton a right of termination, the majority‟s suggestion that the

OEMs faced losing Eaton as a supplier if they failed to meet the

market-share targets is contradicted by the market reality that

while Eaton was the largest manufacturer of transmissions in the

market there were only four OEMs that bought Eaton‟s

transmissions. Accordingly, the idea that Eaton could or would

have refused to deal with one of the OEMs in addition to being

unsupported by the record is irrational from an economic

viewpoint for if Eaton had done so it would have turned its back

on a significant purchaser of its products measured in sales

volume. The notion is completely unjustified.

Perhaps if appellees had produced evidence at the trial

that Eaton had threatened to refuse to supply transmissions to an

OEM that did not meet its market-share targets the non-

mandatory market-share targets would have taken on an air of

the mandatory threats that the majority insists they actually

were. Literally the only evidence that I can identify relating to

this contention is deposition testimony by a Volvo representative

relaying an email he had received from one of his colleagues in

which the colleague stated that Volvo needed to meet its market

share target because if it was not successful it faced “a big risk

of cancellation of the contract, price increases and shortages if

the market is difficult,” J.A. at 688, and a sentence from an

77

internal Volvo presentation in which it speculated that if Eaton

terminated its LTA it would have “[n]o delivery performance

commitment (possibly disastrous),” id. at 2101. While I

understand that we view a jury‟s verdict through a deferential

lens, even under that standard I cannot conclude that one

sentence of second-hand speculation from a contracting party

but not from Eaton as to whether Eaton might provide an OEM

with an insufficient volume of transmissions in the event of a

market shortage and an unidentified Volvo representative‟s

statement that if it did not have a delivery performance

commitment from Eaton it could be potentially disastrous is

sufficient to sustain the inference that facially voluntary market-

share targets were in reality the mandatory, almost extortionary,

provisions the majority makes them out to be.38

I must address also an aspect of the majority‟s reasoning

on this point that I find to suffer from a serious flaw with

dangerous implications for antitrust jurisprudence. Perhaps the

majority does not believe that any evidence was required to

rebut the reality that even though the market-share targets were

38

The majority appears to hang its hat to some extent on the

notion that even if the OEMs did not actually face the threat of

losing Eaton as a supplier they believed they might and that

belief drove their compliance with the LTAs. While, as noted,

there is scant evidence, indeed, for the proposition that the

OEMs‟ efforts to meet the market-share targets was driven by

such a belief, that belief, if unfounded as it was here, does not

support the majority‟s repeated statements to the effect that

Eaton actually coerced the OEMs into entering the LTAs and

meeting the targets.

78

facially voluntary, the mere circumstances that Eaton was the

dominant supplier in the market and that no OEM could afford

to lose it as a supplier sufficed to render the LTAs mandatory.

The majority‟s reasoning in this regard literally would mean that

had Eaton not been the dominant supplier of HD truck

transmissions in the NAFTA market, there would not have been

sufficient evidence for the jury to conclude that the LTAs were

de facto exclusive. While I realize that monopolists may face

more constraints on their conduct under the antitrust laws than

less dominant firms, see LePage‟s, 324 F.3d at 151-52, it is an

unfair and unwarranted leap to create the specter of coercion out

of reference to Eaton‟s market dominance, cf. R.J. Reynolds,

199 F. Supp. 2d at 392 (“The strong position of Marlboro,

however, does not, standing alone „coerce‟ retailers into signing

. . . [market-share] agreements.”). In sum, I cannot ascribe to

the view that a non-mandatory, non-exclusive contract is

transformed magically into a mandatory, exclusive contract by

virtue of reference to the firm‟s market position alone such that

dominant firms must be wary when they enter voluntary

contracts that offer rebates or discounts lest a court later permit

a jury to interpret those contracts as mandatory simply due to

that firm‟s dominant position.

Apart from insinuating that Eaton‟s dominant market

position coerced the OEMs into meeting the market-share

targets, the majority adds to the picture of coercion it attempts to

paint by stating that “there was evidence that Eaton leveraged its

position as a supplier of necessary products to coerce the OEMs

into entering into the LTAs.” Typescript at 48. Relatedly, the

majority states that appellees “presented testimony from OEM

officials that many of the terms of the LTAs were unfavorable to

79

the OEMs and their customers, but that the OEMs agreed to

such terms because without Eaton‟s transmissions, the OEMs

would be unable to satisfy customer demand.” Id.

In point of fact, there is not a trace of evidence beyond

appellees‟ own baseless accusations and the majority does not

bring our attention to any such evidence supporting its rather

serious accusation that Eaton leveraged its position as a

monopolist to force the OEMs to enter into agreements that the

OEMs did not want to enter.39

Eaton‟s offer of lower prices to

39Appellees contend that the OEMs did not want to enter the

LTAs and did so only in response to Eaton‟s coercion by citing

to testimony that in fact weakens their case. In this regard,

appellees rely on a Volvo representative‟s testimony that it

entered into the LTA with Eaton because ZFM did not have a

full product line and thus Volvo would require Eaton‟s products

even if it entered into an LTA with ZFM but if Eaton was not its

standard partner it would not provide favorable pricing to

Volvo. See J.A. at 522; see also J.A. 2098 (noting that Eaton

would not provide favorable pricing to Volvo if it selected ZFM

as its partner). In part for this reason, it elected to enter the LTA

with Eaton.

In business as in life we rarely are presented with a

perfect option. The fact that long-term supply agreements with

ZFM and Eaton each had their respective advantages and

disadvantages is hardly surprising and that Eaton would not

have granted an OEM the generous discounts its LTA provided

if it selected ZFM as its primary supplier is likewise not exactly

an astonishing revelation. That the OEMs had to weigh these

80

the OEMs in the form of rebates and direct payments in an effort

to gain their business is hardly coercion. Rather, it is nothing

more than legitimate good business practice. See Race Tires,

614 F.3d at 79 (“[I]t is no more an act of coercion, collusion, or

improper interference for [suppliers] . . . to offer more money to

[customers] . . . than it is for such suppliers to offer the lowest . .

. prices.”).

Likewise, there is no evidence that the LTAs represented

unfavorable arrangements for the OEMs such that the OEMs

only agreed to enter the contracts out of fear of losing Eaton as a

supplier.40

Indeed, to the extent one may be tempted to infer

factors in deciding whether to enter into an LTA with Eaton

hardly amounts to coercion. 40

In their brief, appellees point to the testimony of two OEM

representatives who testified to the hardly surprising fact that

they would have preferred upfront price cuts with no strings

attached as opposed to conditional market-share targets but that

the OEMs entered the agreements because they nonetheless

offered the best prices. See J.A. at 415-16 (deposition testimony

of International representative) (stating that International

preferred to have upfront discounts “in price” but “if a supplier

is willing to offer [it] rebates” it would take that option if it

believed it could meet the conditions for those rebates); see id.

at 525 (deposition testimony of Volvo representative) (stating

that during LTA negotiations Volvo “wanted no” market-share

targets but it agreed to the 68% target because it believed it

could achieve that target and it “wanted the savings and the

equalization, and the rebates”). That the OEMs would have

81

that the market-share targets were so high as to be unfavorable

to the OEMs I note that the targets were actually very close to or

in fact below Eaton‟s preexisting market share at three out of the

four OEMs measured at a time before the adoption of the LTAs

during which appellees do not claim that Eaton was violating

any law. See J.A. at 4779 (Dr. DeRamus‟ expert report)

(Eaton‟s LTA with International began providing rebates at 80%

market share but Eaton‟s market share of International‟s

transmission needs prior to the LTA already was 79%); id. at

4785 (Eaton‟s LTA with PACCAR provided rebates beginning

at 90% but Eaton‟s market share “consistently hover[ed] around

90% or higher for HD transmissions” with PACCAR prior to the

LTA); id. at 4793 (Eaton‟s LTA with Volvo provided a rebate

starting at 65% market share but Eaton‟s market share of

Volvo‟s transmissions was 85% when they entered the LTA in

2002.). The reality that the market share levels that Eaton

reached prior to the adoption of the LTAs makes it, in a word I

do not like using but fits perfectly here, ridiculous to conclude

that the LTAs had a coercive effect on the OEMs.

preferred that Eaton simply cut its prices is hardly surprising.

Customers faced with a buy one at full price and get one for

50% off deal likely would prefer to have the option of buying

one item for 50% off. Yet, in the same way that the customer

who purchases the two items to receive the discount on one

cannot be said to have been “coerced” into that transaction, the

OEMs‟ preference for unconditional price cuts hardly can be

used as evidence that the terms of the LTAs were “unfavorable”

to them, much less so “unfavorable” as to warrant the inference

that the OEMs must have entered them as a product of coercion.

82

After studying the majority‟s treatment of the LTAs I am

left with the impression that it pictures Eaton representatives as

using coercion when they handed the OEM representatives the

LTAs. Yet the reality is that there is absolutely no evidence in

the record suggesting that Eaton compelled the OEMs by the

threat of punishment to agree to the LTAs or compelled them to

meet the share targets.41

Quite to the contrary, the record is

replete with evidence, as I have summarized above, that shows

that far from cowering under Eaton‟s “threats,” the OEMs

entered into the LTAs in furtherance of their own economic self-

interests and because those agreements provided the best

possible prices and assurance of a full product line supply. They

worked to meet the market-share targets because by achieving

those targets they received discounted prices.

Tellingly, the evidence also shows that the OEMs used

those arrangements to their advantage. An illuminating example

of this market reality is found in a letter an International

representative wrote to ZFM in June 2002, in which the

representative recounted the HD truck market‟s dramatic slump

and stated to ZFM that:

In the last 12 months, your competition has

supported our need for cost control with price

41

Of course, the lack of coercion associated with the LTAs is

significant. While coercion is not “an essential element of every

antitrust claim,” it is an important consideration where the

relevant market players adopt their own business practices and

the parties “freely entered into exclusive contracts.” Race Tires,

614 F.3d at 78.

83

reductions consistent with the trend in new truck

pricing. In addition, one of your competitors [i.e.,

Eaton] has offered International a compelling

incentive to increase their sales at your expense.

As a result, International is seriously considering

shifting your portion of our buy to alternative

suppliers.

International values the relationship our

companies have created over the years. However,

the relationship is in jeopardy if your lack of cost

competitiveness cannot be overcome. We

therefore require a 5% across the board price

reduction effective August 1, 2002.

J.A. at 4596 (letter from Paul D. Barkus, International, to Robert

S. Harrison, ZFM (June 18, 2002)). In fact, the record shows

that six months prior to this correspondence, International had

attempted to use its relationship with Eaton as leverage to gain

further cost reductions from ZFM. See id. at 3727 (electronic

mail from Paul D. Barkus, International, to Galynn Skelnik,

International (Jan. 11, 2002)) (“I got a phone message from

[ZFM] . . . stating that after much internal discussion they have

decided not to offer any transmission reductions even though

their list prices could be increased. . . . Our strategy was to give

Meritor the impression that our Partnership with Eaton provided

us with HD reductions that would increase Meritor‟s list price if

they didn‟t offset the widened price gap. That started out as a

bluff, but when we look at our option prices between the two

supplier[s] there appears to be some cost/price inconsistency.”).

In sum, because appellees failed to produce evidence to show

84

that the LTAs and their voluntary, above-cost market-share

target rebates could have or did foreclose competition in any,

much less a substantial, share of the market, notwithstanding the

jury‟s verdict it is obvious that appellees‟ claims must fail under

Tampa Electric.

Before moving on, I think it appropriate to make a final

point on the importance of the Tampa Electric standard and to

illuminate fully why I depart from the majority‟s application of

that case. As I already have noted, exclusive-dealing contracts

are not per se unlawful and, indeed, may lead to more

competition in the marketplace as firms compete for such

potentially lucrative arrangements. Accordingly, one must ask

why antitrust law ever would forbid such contracts. The reason,

as the Supreme Court‟s Tampa Electric standard makes clear, is

that where there is such an agreement, the seller‟s competitors

cannot compete for the percentage of the market that a purchaser

needs because the purchaser has signed a contract to deal only in

the goods of that particular seller (or has signed a contract that

has that practical effect). Even if the seller‟s competitors can

offer a better deal to the purchaser, the purchaser is precluded

from accepting competing offers because they have entered the

exclusive-dealing arrangement. Cf. Standard Oil, 337 U.S. at

314, 69 S.Ct. at 1062 (requirements contract violated Section 3

because “observance by a dealer of his requirements contract

with Standard does effectively foreclose whatever opportunity

there might be for competing suppliers to attract his patronage,

and . . . the affected proportion of retail sales of petroleum

products is substantial”). Therefore, competition is foreclosed

in that percentage of the marketplace and under Tampa Electric

the question is simply whether that foreclosure is substantial,

85

considering the quantity of the foreclosure and the qualitative

aspects of the marketplace and the agreement itself.

It is that foreclosure of competition, the elimination of

the possibility that the seller‟s competitors can capture that

portion of the market through vigorous competition, with which

Section 3 (and Section 1 of the Sherman Act in exclusive-

dealing cases) is concerned. See Tampa Elec. Co., 365 U.S. at

328, 81 S.Ct. at 629 (emphasis added) (observing that “the

ultimate question” is “whether the contract forecloses

competition in a substantial share of the line of commerce

involved”). The Tampa Electric market-foreclosure analysis

thus assumes that a circumstance existed which appellees seek

and fail to prove existed here: that there was an exclusive-

dealing arrangement between a market seller and purchaser.

Now consider the case at hand. The parties do not

dispute that the LTAs did not require the OEMs to purchase

anything, much less 100% of their needs, from Eaton and

appellees do not contend that Eaton‟s prices were below cost.

Accordingly, appellees remained free at all times to compete for

the OEMs‟ (and the truck purchasers‟) business. Appellees, if

they were equally efficient competitors, were at liberty to offer

lower prices, better products, more logistical and technical

support, or any other myriad considerations to make their

products more attractive to the OEMs, and the OEMs and the

truck purchasers were at all times free to accept appellees‟

products and services. Accordingly, the LTAs did not foreclose

competition in any portion of the market. This basic point —

that the LTAs were not in fact exclusive-dealing arrangements

that foreclosed competition in any portion of the market —

86

explains appellees‟ failure to identify before us any credible,

precise percentage of market foreclosure. Appellees‟ failure to

meet their burden under Tampa Electric to prove any

quantitative degree of market foreclosure should spell the end of

their Section 3 and Section 1 claims.

Although I believe that appellees‟ failure in this regard

renders unnecessary discussion of the qualitative analysis under

Tampa Electric, I note briefly that contrary to the majority‟s

discussion, the qualitative inquiry elucidates further why the

LTAs did not violate Section 3. Contrary to the majority‟s

statement that the long duration of the contracts added to their

alleged anticompetitiveness, the duration of the LTAs is of little

to no significance because they did not actually preclude the

OEMs from purchasing competitors‟ products at any time during

the life of the LTA. Because the OEMs were free to walk away

from the discounts at any time it does not matter how long Eaton

promised to offer those discounts to the OEMs.

Moreover, a claim of lack of ease of terminability is

likewise a non-starter given the LTAs were terminable at will;

the agreements simply would have lost their force once the

OEMs decided to seek Eaton‟s competitors‟ products and forego

the market-share rebate.42

The majority denies that the LTAs

42

Although I conclude that the LTAs did not foreclose

competition in any portion of the market, if as the majority

concludes, the LTAs did foreclose competition in the market,

that alleged foreclosure effect necessarily was diminished by the

fact that the LTAs at most blocked only one avenue of reaching

the end-users, i.e., the truck purchasers. Component part

87

were easily terminable by reasoning that “the OEMs had a

strong economic incentive to adhere to the terms of the LTAs,

and therefore were not free to walk away from the agreements.”

Typescript at 52. I reject the majority‟s ipse dixit reasoning on

this point. While Eaton offered through the LTAs financial

incentives that undoubtedly served as the OEMs‟ motivation to

meet the market-share targets, the LTAs‟ promise of financial

reward does not mean that the OEMs were not at liberty to leave

the LTAs behind to take up a more attractive offer. Economic

incentives are by their nature fluid and the OEMs‟ incentives

might have shifted in the face of a more financially appealing

option.

Additionally, “[t]he existence of legitimate business

justifications for the contracts also supports the legality of the . .

. contracts.” Barr Labs., 978 F.2d at 111. In this regard,

evidence that the defendant‟s actions were motivated by an

ordinary business motive is significant. See Aspen Skiing Co. v.

Aspen Highlands Skiing Corp., 472 U.S. 585, 608, 105 S.Ct.

2847, 2860 (1985) (noting that “[p]erhaps most significant . . . is

the evidence related to [defendant] itself, for [defendant] did not

persuade the jury that its conduct was justified by any normal

business purpose”). Eaton contends that the LTAs were

designed to meet the OEMs‟ demands to lower prices by

consolidating their component part suppliers and that the OEMs

manufacturers, including ZFM, can and do advertise directly to

truck purchasers and are able to offer discounts directly to those

consumers as an incentive for them to select their parts from

their data books, and truck purchasers were at all times free to

select appellees‟ products.

88

entered the contracts because they afforded the best possible

prices. As I noted above, the record supports this assertion as

representatives from each of the OEMs testified that the OEMs

entered into the LTAs because those agreements were

financially attractive, and ZFM itself noted in 2001 that the

OEMs sought a single-source supplier.43

Additionally, an Eaton

representative testified that when the OEMs increase their

purchases of Eaton‟s products, Eaton is able to “translate that

volume into [a] lower cost base, [and] come up with the funds

and the revenue to give them [the OEMs] more competitive

pricing, which is what they were asking for.” J.A. at 1398.

In a similar circumstance, we concluded that a defendant

drug manufacturer offered valid business justifications to defeat

its competitor‟s Section 1 and Section 3 claims, which attacked

the defendant‟s offer of contracts that provided volume-based

discounts to warehouse chain drug stores. See Barr Labs., 978

F.3d at 104-05. We found that there were “legitimate business

justifications for the contracts” because “the evidence

established that the warehouse chains [that carried defendant‟s

products] entered the contracts because of the inherent

advantages they saw in them in price, convenience, and service”

and “[t]he contracts also proved advantageous from Abbott‟s

perspective in terms of reaping business goodwill, and as

providing high volume, low transaction cost outlets for Abbott‟s

43

The majority states that the procompetitive justifications of the

LTAs are diminished by the fact that no OEM asked Eaton to be

a sole supplier. My response to that assertion is as simple as

remarking once more that the LTAs did not by their terms or by

their effect make Eaton a sole supplier for any of the OEMs.

89

manufacturing capacity.” Id. at 111; see also Virgin Atl.

Airways, 257 F.3d at 265 (finding that defendant proffered pro-

competitive justification for market-share incentive agreement

because such agreements “allow firms to reward their most loyal

customers” and “[r]ewarding customer loyalty promotes

competition on the merits”); Barry Wright, 724 F.2d at 237

(finding legitimate business justification for requirements

contracts because for the purchaser “the contracts guaranteed a

stable source of supply, and, perhaps, more importantly, they

assured [the purchaser] a stable, favorable price” and for the

seller “they allowed use of considerable excess . . . [product]

capacity and they allowed production planning that was likely to

lower costs”).

Undoubtedly, Eaton was motivated to tender the LTAs

because of its desire to increase sales of its product. Although

such a motivation could not excuse otherwise anticompetitive

conduct, the desire to sell more product is an ordinary business

purpose, and the antitrust laws do not prohibit such motivation.

As the Supreme Court stated in Cargill, “competition for

increased market share[] is not activity forbidden by the antitrust

laws. It is simply . . . vigorous competition.” 479 U.S. at 116,

107 S.Ct. at 492 (emphasis added); see also Concord Boat, 207

F.3d at 1062 (noting that defendant‟s proffered reason that it

was “trying to sell its product” through market-share discounts

constituted valid, pro-competitive business justification for

program); Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d

518, 524 (5th Cir. 1999) (observing that defendant‟s explanation

that “it was trying to sell its product” was valid business

justification).

90

Tampa Electric makes clear that “it is the preservation of

competition which is at stake” under Section 3. 365 U.S. at 328,

81 S.Ct. at 628 (emphasis added and internal quotations marks

and citation omitted). Here, appellees remained free at all times

to compete for the OEMs‟ business and directly for customers‟

business and yet the majority permits a jury to condemn the

LTAs. I cannot join in that conclusion. Appellees failed to

supply an evidentiary basis to establish that the LTAs had the

probable effect of foreclosing competition in a substantial share

of the market and thus they failed to produce evidence that could

demonstrate that Eaton violated Section 3 of the Clayton Act.

Because Section 3 of the Clayton Act sweeps more broadly than

Section 1 of the Sherman Act, appellees likewise failed to show

that Eaton violated Section 1.

C. Sherman Act Section 2 Claim

Appellees presented the same evidence and same de facto

exclusive dealing theory on which they based their Section 2

claim as they did to support their Clayton Act Section 3 and

Sherman Act Section 1 claims. In light of my lengthy analysis

of appellees‟ other claims, I will abbreviate my discussion of

their Section 2 claim.

Section 2 targets defendants who “monopolize or attempt

to monopolize, or combine or conspire with any other person or

persons, to monopolize any part of the trade or commerce

among the several States, or with foreign nations.” 15 U.S.C. §

2. To establish a Section 2 violation, a plaintiff must show that:

(1) the defendant possessed monopoly power in the relevant

market and (2) the defendant willfully acquired or maintained

91

that power “as distinguished from growth or development as a

consequence of a superior product, business acumen, or historic

accident.” Eastman Kodak Co. v. Image Tech. Servs., Inc., 504

U.S. 451, 481, 112 S.Ct. 2072, 2089 (1992) (quoting United

States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698,

1704 (1966)). Eaton acknowledges that it has monopoly power

in the NAFTA HD truck transmission market, and thus I focus

my discussion on whether it has maintained that monopoly

through unlawful means.

A monopolist willfully acquires or maintains monopoly

power in contravention of Section 2 if it “attempt[s] to exclude

rivals on some basis other than efficiency.” Aspen Skiing Co.,

472 U.S. at 605, 105 S.Ct. at 2859. “Anticompetitive conduct

may take a variety of forms, but it is generally defined as

conduct to obtain or maintain monopoly power as a result of

competition on some basis other than the merits.” Broadcom

Corp. v. Qualcomm Inc., 501 F.3d 297, 308 (3d Cir. 2007)

(citation omitted). “[E]xclusive dealing arrangements can be an

improper means of maintaining a monopoly.” Dentsply, 399

F.3d at 187 (citing Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698;

LePage‟s, 324 F.3d at 157).

The District Court denied Eaton‟s motion seeking a

judgment as a matter of law on appellees‟ Section 2 claim as it

concluded that “[t]he jury found that [Eaton] had willfully

acquired or maintained its monopoly power through LTAs that

amounted to de facto exclusive dealing contracts having the

power to foreclose competition from the marketplace.” ZFM,

769 F. Supp. 2d at 697 (emphasis added). In this regard, the

Court concluded that “„neither proof of exertion of the power to

92

exclude nor proof of actual exclusion of existing or potential

competitors is essential to sustain a charge of monopolization

under the Sherman Act.‟” Id. (quoting LePage‟s, 324 F.3d at

148).

The District Court‟s finding on this point reflected its

misunderstanding of the requirements of Section 2. As we

recently stated in Dentsply:

Unlawful maintenance of a monopoly is

demonstrated by proof that a defendant has

engaged in anti-competitive conduct that

reasonably appears to be a significant contribution

to maintaining monopoly power. Predatory or

exclusionary practices in themselves are not

sufficient. There must be proof that competition,

not merely competitors, has been harmed.

399 F.3d at 187 (citing LePage‟s, 324 F.3d at 162) (emphasis

added) (citations omitted); see also Broadcom, 501 F.3d at 308

(“[T]he acquisition or possession of monopoly power must be

accompanied by some anticompetitive conduct on the part of the

possessor.”) (citing Verizon Commc‟ns Inc. v. Law Offices of

Curtis V. Trinko, LLP, 540 U.S. 398, 407, 124 S.Ct. 872, 878-

79 (2004)).

Indeed, in Dentsply we made clear that a plaintiff‟s

demonstration that the defendant merely possessed the power to

exclude is not a sufficient basis on which to build a claim that

the defendant is culpable under Section 2; a plaintiff must show

that the defendant used its power to foreclose competition. See

93

399 F.3d at 191 (“Having demonstrated that Dentsply possessed

market power, the Government must also establish the second

element of a Section 2 claim, that the power was used „to

foreclose competition.‟”) (quoting United States v. Griffith, 334

U.S. 100, 107, 68 S.Ct. 941, 945 (1948)) (emphasis added). As

the Supreme Court explained in Trinko:

The mere possession of monopoly power, and the

concomitant charging of monopoly prices, is not

only not unlawful; it is an important element of

the free-market system. The opportunity to

charge monopoly prices — at least for a short

period — is what attracts „business acumen‟ in

the first place; it induces risk taking that produces

innovation and economic growth. To safeguard

the incentive to innovate, the possession of

monopoly power will not be found unlawful

unless it is accompanied by an element of

anticompetitive conduct.

540 U.S. at 407, 124 S.Ct. at 879 (emphasis in original).

“Conduct that merely harms competitors . . . while not

harming the competitive process itself, is not anticompetitive.”

Broadcom, 501 F.3d at 308; see also Spectrum Sports, Inc. v.

McQuillan, 506 U.S. 447, 458, 113 S.Ct. 884, 892 (1993) (The

Sherman Act “directs itself not against conduct which is

competitive, even severely so, but against conduct which

unfairly tends to destroy competition itself.”). To determine

whether a practice is anticompetitive in violation of Section 2,

we consider “whether the challenged practices bar a substantial

94

number of rivals or severely restrict the market‟s ambit.”

Dentsply, 399 F.3d at 191 (citations omitted). Thus, the

standard for ascertaining whether certain conduct is

anticompetitive under Section 2 is quite similar to the market-

foreclosure analysis under Section 3 of the Clayton Act.

“Conduct that impairs the opportunities of rivals and either does

not further competition on the merits or does so in an

unnecessarily restrictive way may be deemed anticompetitive.”

W. Penn Allegheny Health Sys., 627 F.3d at 108 (internal

quotation marks and citation omitted).

Accordingly, for largely the same reasons that appellees‟

Section 3 and Section 1 claims fail, so, too, does their Section 2

claim. Because the LTAs did not obligate the OEMs to

purchase anything from Eaton and did not condition the rebates

on Eaton having a 100% market share and because its prices

were at all times above-cost, the LTAs allowed any equally

efficient competitor, including appellees, if they were equally

efficient competitors, to compete. Thus, the LTAs did not bar

Eaton‟s competitors from the market nor did the LTAs impair

their opportunities to compete with Eaton for the business the

LTAs covered. Cf. NicSand, Inc. v. 3M Co., 507 F.3d 442, 452

(6th Cir. 2007) (en banc) (plaintiff failed to demonstrate

antitrust injury under Sherman Act Section 2 because

defendant‟s rebates and up-front payments to retailers pursuant

to exclusive dealing contract were above-cost).

In this regard, the LTAs stand in stark contrast to the

contracts at issue in Dentsply, a case on which appellees and the

majority rely heavily. In Dentsply we considered whether

Dentsply, a monopolist in the field of the production of artificial

95

teeth, violated Section 2 of the Sherman Act through a provision

called “Dealer Criterion 6” in its contracts with dealers, who, in

turn, sold the products to dental laboratories. See 399 F.3d at

184-85. The provision, which Dentsply “imposed . . . on its

dealers” prohibited the dealers from adding non-Dentsply tooth

lines to their product offering. See id. Dealers who carried

competing lines prior to the implementation of Dealer Criterion

6 were permitted to continue carrying non-Dentsply products,

but Dentsply enforced Dealer Criterion 6 against all other

dealers. See id.

We concluded that Dealer Criterion 6 violated Section 2

because “[b]y ensuring that the key dealers offer Dentsply teeth

either as the only or dominant choice, Dealer Criterion 6 ha[d] a

significant effect in preserving Dentsply‟s monopoly.” Id. at

191. We noted that “Criterion 6 impose[d] an „all-or-nothing‟

choice on the dealers” and “[t]he fact that dealers ha[d] chosen

not to drop Dentsply teeth in favor of a rival‟s brand

demonstrates that they ha[d] acceded to heavy economic

pressure.” Id. at 196. Accordingly, we concluded that Dealer

Criterion 6 harmed competition by “keep[ing] sales of

competing teeth below the critical level necessary for any rival

to pose a real threat to Dentsply‟s market share.” Id. at 191.

Criterion 6 so limited competitors‟ sales because Dentsply‟s

competitors realistically could not hope to compete solely

through direct sales to laboratories and because “[a] dealer

locked into the Dentsply line [wa]s unable to heed a request for

a different manufacturers‟ product . . . .” Id. at 194.

Unlike Dealer Criterion 6, the LTAs did not impose an

“all-or-nothing” choice on the OEMs because they did not

96

prohibit the OEMs from purchasing or from offering to its HD

truck purchasers non-Eaton transmissions. Accordingly, the

LTAs did not suppress sales of appellees‟ products because the

OEMs were able to and, in fact, did heed truck purchasers‟

requests for ZFM‟s products. Critically, at all times, truck

purchasers retained the freedom to make the ultimate decision

with respect to the transmissions they would select. Thus, the

situation here differs from that in Dentsply because the LTAs

did not have the effect of making Eaton the only choice for truck

purchasers nor did it impair the purchasers‟ choice in the

marketplace. See J.A. at 1530 (deposition testimony of Paul D.

Barkus, International) (indicating that International‟s LTA

included a clause explicitly stating that International was not

precluded from dealing in Eaton‟s competitors‟ products

because International “would never jeopardize a condition of

sale based on a customer specifying a product that [it] would

refuse to provide”).

Adding to the specter of restricted customer choice, the

majority states that the OEMs worked with Eaton to force feed

Eaton‟s products to customers and to shift truck fleets from

using ZFM transmissions to Eaton transmissions. It appears that

there is some evidence in the record for the unsurprising

contention that the OEMs sought to meet the market share

targets and thus obtain the rebates in part by persuading their

customers to select Eaton‟s products. Indeed, in all walks of life

if a salesperson has more to gain by selling a customer product

X as opposed to product Y it is to be expected that the

salesperson will push the customer to select product X.

Ultimately, however, the majority does not and cannot dispute

the fact that the HD truck purchasers at all times were free to

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select any transmission, including ZFM‟s transmissions, for

their truck orders.

Though appellees also assert that the LTA provisions that

required the OEMs to list Eaton‟s products as the preferred and

standard option in their data books constituted anticompetitive

conduct, those provisions no more support appellees‟ case than

the rebates that the LTAs provided. Appellees claim that the

provisions were anticompetitive because they required the

OEMs to charge artificially higher prices for ZFM‟s products

than for Eaton‟s. This is not the case, however, because the

terms of the LTAs only required that the OEMs ensure that

Eaton was priced as the lowest-cost option, which, with respect

to the OEMs, was at all times the case.

As a PACCAR representative explained, a component

part manufacturer “is going to get a preferred position in the

data book as long as . . . [it is] competitive in the marketplace,

and being competitive in the marketplace means that . . . [it has]

the lowest total cost to PACCAR, total cost, not just price, total

cost.” Id. at 1553. A competitor manufacturer‟s product will be

listed “at a premium . . . because that other transmission . . . is at

a higher cost to PACCAR.” Id. at 1552. Indeed, that

representative confirmed that data book positioning was in fact

“a leverage point for [PACCAR] to negotiate . . . [to] manage

[its] supply base.” Id. at 1553. Accordingly, Eaton‟s demand

that the OEMs preferentially price its products reflected the fact

that those transmissions came at the lowest cost to the OEMs

and the fact that Eaton had made certain price concessions to the

OEMs in exchange for that favorable listing, a practice that was

apparently commonplace in the HD truck transmission market.

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Furthermore, the demand had the added consequence of

assuring Eaton that it receive the favorable promotion for which

it had bargained through its price concessions. If the LTAs did

not include requirements regarding data book placement, an

OEM would have been able to purchase Eaton‟s transmissions at

a low cost while listing Eaton‟s products at a higher cost to the

truck purchasers than ZFM‟s products in its data book, thereby

reaping a greater profit on Eaton‟s transmissions. It was entirely

reasonable for Eaton to avoid this scenario by insisting that the

OEMs‟ data books reflect that Eaton‟s transmissions were the

lowest-cost, highest-value product.

As the majority notes, it is unclear from the record

whether the OEMs arrived at the preferential price by lowering

the price of the preferred option or by raising the price of the

non-preferred options until the preferred component part was the

lowest-cost option. The LTAs simply required that the OEMs

list Eaton as the preferred option but they did not require that the

OEMs take either path in doing so, and thus it appears that the

OEMs had the discretion to decide in which way they would

make Eaton the preferred option. Of course, from the OEMs‟

perspective, keeping the price of Eaton‟s products stable and

raising the price of Eaton‟s competitors‟ products was the more

financially attractive option than keeping the prices of Eaton‟s

competitors‟ products stable and dropping the price of Eaton‟s

products and, as the majority points out it appears there is some

evidence in the record that the OEMs took the first path.44

44Thus, as the majority notes, in an email exchange between

Eaton and Freightliner representatives a Freightliner

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Nevertheless, to the extent that the OEMs in some

instances may have decided to ZFM‟s raise the cost of

transmissions to arrive at the preferential price for Eaton‟s

transmissions or to make Eaton‟s transmissions appear more

favorable to their customers in an effort to achieve the market-

share targets and receive the rebates, such conduct reasonably

cannot be attributed to Eaton as neither the LTAs nor Eaton

elsewhere required that the OEMs do so. Additionally, it is

clearly telling with respect to data book placement provisions

that prior to 2001 Meritor had a three-year LTA with

representative stated that its LTA with Eaton required it to price

ZFM‟s products at a $200 premium. Yet, Freightliner‟s LTA

did not require that Freightliner price ZFM‟s products at a

premium; it simply required that Eaton‟s products be the lowest-

priced option. In light of the silence of Freightliner‟s LTA as to

this issue, I can interpret this exchange only to mean that

Freightliner had elected to price Eaton‟s products preferentially

by imposing the $200 premium on ZFM‟s products. Likewise, it

appears that International and PACCAR may have imposed

charges on customers who selected ZFM‟s products but neither

their respective LTA nor Eaton itself required them to do so. In

fact, as noted, at least in regard to International, there is

evidence in the record that suggests that the data book price

increases for ZFM‟s transmissions were a product of

International‟s realization in 2002 that its current price for

ZFM‟s products did not reflect accurately the cost of that

product to International. See J.A. at 3727 (e-mail from Paul D.

Barkus, International, to Galynn Skelnik, International (Jan. 11,

2002)) (proposing that International increase ZFM‟s list prices

to bring them “in line with where they should be”).

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Freightliner, under which Meritor reduced the prices of its

component parts if Freightliner listed those parts as the standard

option. Furthermore, there is evidence in the record that as of

June 2002, ZFM itself was attempting to achieve exclusive

listing in PACCAR‟s data book. See id. at 3394 (electronic

correspondence from Tom Floyd, PACCAR, to Christian

Benner, ZFM (June 4, 2002)) (noting that PACCAR was

“extremely disappointed” with ZFM‟s business proposal in part

because PACCAR was “very clear that” ZFM‟s proposal

“should not include requirements regarding exclusive

position[ing]” and that “it would require some extraordinary

benefits for PACCAR in order [for ZFM] to receive

consideration” in that regard).

While Meritor‟s prior LTA and ZFM‟s own attempts to

achieve exclusive data book positioning do not, in themselves,

defeat appellees‟ claim that those tactics are anticompetitive,

their actions are of some significance. Cf. Race Tires, 614 F.3d

at 82 (noting fact that plaintiff created and championed racing

sanctioning bodies‟ rule that required the use of a single brand

of tire during races and later alleged such rule violated the

antitrust law); NicSand, 507 F.3d at 454 (plaintiff‟s prior use of

exclusive-dealing contract undermined its attack on defendant‟s

use of such arrangements). At a minimum, ZFM‟s conduct

belies its contention that the LTAs were far afield from the

normal practice of the HD truck transmission market.

In our consideration of this case we should remember that

“[a]ntitrust analysis must always be attuned to the particular

structure and circumstances of the industry at issue.” Trinko,

540 U.S. at 411, 124 S.Ct. at 881. Practices from industry to

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industry do not come on a one-size-fits-all basis. Here, it

appears that bargaining between the OEMs and their suppliers

regarding data book positioning is quite typical of the

marketplace with which we are dealing. See Race Tires, 614

F.3d at 79 (noting as relevant that it was “a common and

generally accepted practice for a supplier to provide a sports

sanctioning body . . . financial support in exchange for a supply

contract”); Concord Boat, 207 F.3d at 1062 (observing that

“Brunswick‟s competitors also cut prices in order to attract

additional business, confirming that such a practice was a

normal competitive tool within the . . . industry”); see also Trace

X Chem., Inc. v. Canadian Indus., Ltd., 738 F.2d 261, 266 (8th

Cir. 1984) (“Acts which are ordinary business practices typical

of those used in a competitive market do not constitute conduct

violative of Section 2.”).

But appellees‟ case fails for one more reason than its

failure to show that Eaton engaged in anticompetitive conduct,

in that their case also did not include evidence that the LTAs

harmed competition. See Dentsply, 399 F.3d at 187 (“There

must be proof that competition, not merely competitors, has

been harmed.”). Appellees contend that the LTAs harmed

competition by depriving truck buyers of access to the

FreedomLine, which appellees believe was a technologically

innovative product, and by causing truck buyers to pay higher

prices.

With regard to the FreedomLine, it is enough to say once

more that the OEMs and truck purchasers were at all times free

to purchase that transmission as well as any other of ZFM‟s

transmissions, whether or not those transmissions were listed in

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the data books. Additionally, with the exception of

International, the LTAs permitted the OEMs to list all of ZFM‟s

transmissions, including the FreedomLine, in their respective

data books and the OEMs continued to do just that.45

Appellees do not point to any evidence in support of their

contention that truck purchasers paid higher prices as a result of

45

I have not overlooked the fact that International‟s LTA

required it to list Eaton‟s transmissions exclusively. Yet,

International continued to list ZFM‟s manual transmissions, and

it is thus not apparent whether its decision not to list ZFM‟s

automated and automated mechanical transmissions is

attributable to the LTA. Regardless, International‟s failure to

list the FreedomLine, standing alone, did not deprive truck

purchasers of access to the FreedomLine because truck

purchasers were at all times free to specify the use of the

FreedomLine transmission. Furthermore, it is important to note

that HD truck purchasers in many cases were sophisticated

customers in the HD truck market that were aware that ZFM‟s

transmissions were available. Though I recognize that some

purchasers likely were small operators perhaps owning only one

HD truck who may have had limited knowledge of the

differences in available transmissions, certainly the large

purchasers, i.e., big trucking companies, would have been more

knowledgeable with respect to available transmissions. In any

event, we are, after all, not dealing with consumers buying

motor vehicles for their personal use. The transmissions

involved here were installed in vehicles intended for commercial

use, and the owners did not acquire the vehicles to go to the

grocery store.

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the LTAs. The only evidence that I can find in the record

relevant to appellees‟ allegation in this regard is Dr. DeRamus‟

statement in his expert report offered by appellees that after the

LTAs went into effect Eaton reduced its “competitive

equalization” or incentive payments that historically it had paid

to truck buyers as an incentive to them to select Eaton‟s

transmissions. See J.A. at 4830. While Dr. DeRamus put forth

data demonstrating that Eaton decreased its competitive

equalization payments on average by about $100 (dropping from

roughly $500 on average to just below $400 on average) from

1999 to 2007, see id. at 4831, he did not present a scintilla of

evidence that truck purchasers ultimately paid a higher price for

Eaton‟s transmissions during the existence of the LTAs or

following their expiration. Overall, it is clear that his testimony

in this regard as an inadequate basis on which to predicate an

antitrust case. In sum, appellees failed to put forth any — much

less sufficient — evidence that Eaton engaged in

anticompetitive conduct or that Eaton‟s conduct actually harmed

competition, both of which are required elements of a claim

under Section 2.46

46Even if a plaintiff establishes under Section 2 that “monopoly

power exists” and that “the exclusionary conduct . . . ha[s] an

anti-competitive effect,” “the monopolist still retains a defense

of business justification.” Dentsply, 399 F.3d at 187; Concord

Boat, 207 F.3d at 1062 (“A Section 2 defendant‟s proffered

business justification is the most important factor in determining

whether its challenged conduct is not competition on the

merits.”); Stearns Airport Equip. Co., 170 F.3d at 522 (“The key

factor courts have analyzed in order to determine whether

104

III. CONCLUSION

I offer a few final thoughts on this important case, which,

though seemingly complicated, should have an obvious result.

It is axiomatic that “[t]he antitrust laws . . . were enacted for „the

protection of competition not competitors.‟” Brunswick, 429

U.S. at 488, 97 S.Ct. at 697 (quoting Brown Shoe Co. v. United

States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521 (1962))

(emphasis in original). Yet as often as this refrain is repeated

throughout antitrust jurisprudence, it appears increasingly that

disappointed competitors, on the assumption that their deficient

performances must be attributable to their competitors‟

anticompetitive conduct rather than their own errors in judgment

or shortcomings or their competitors‟ more desirable products or

business decisions, or on the assumption that they can convince

a jury of that view, turn to the antitrust laws when they have

been outperformed in the marketplace. Of course, competitors

can be and sometimes are harmed by their peers‟ anticompetitive

conduct and when they show that is what happened they may

have viable antitrust claims. Yet often it is the case that a

defeated competitor falls back on the antitrust laws in an attempt

to achieve in the courts the goal that it could not reach in the

challenged conduct is or is not competition on the merits is the

proffered business justification for the act.”). As with appellees‟

Section 3 and Section 1 claim, Eaton‟s valid business

justifications for the LTAs undermines the notion that the LTAs

constituted competition on some basis other than the merits in

violation of Section 2.

105

properly-functioning competitive marketplace. This case is a

classic demonstration of that process, which so far with respect

to liability even if not damages has been successful. Indeed, I

find it remarkable that appellees‟ case that is predicated on

nothing more than smoke and mirrors has gotten so far.

But the basic facts are clear. Appellees do not bring a

predatory pricing claim because they cannot do so as Eaton‟s

prices were above cost. Instead, they seek refuge in the law of

exclusive dealing to challenge the LTAs, which based on the

record could not be found to be either facially or de facto

exclusive or mandatory. After stripping this case of appellees‟

baseless insinuations that Eaton engaged in coercive or

threatening conduct in regards to the LTAs, it becomes apparent

that the core of appellees‟ claim really is their belief they had a

superior product in the FreedomLine and the disappointing sales

of that product relative to their expectations must have been

attributable to Eaton‟s anticompetitive conduct. See appellees‟

br. at 32 (“Eaton‟s conduct harmed competition and ZFM. For

the first time in this market, a better product, even combined

with offers of discounts, could not elicit additional sales because

Eaton‟s LTAs and other conduct had broken the competitive

mechanism.”). Appellees thus “appear[] to be assuming that if

[Eaton‟s] product was not objectively superior, then its victories

were not on the merits.” Stearns Airport Equip., 170 F.3d at

527.

As the Court of Appeals for the Fifth Circuit stated in

Stearns Airport Equipment in confronting a similar type of

claim, courts are “ill-suited . . . to judge the relative merits of”

the parties‟ respective products. Id. “That decision is left in the

106

hands of the consumer, not the courts, and to the extent this

judgment is „objectively‟ wrong, the inference is not that there

has been a[n] [antitrust] violation . . . , but rather that the

winning party displayed superior business acumen in selling its

product.” Id. The truth is that neither judges nor juries have

expertise in determining the best transmission to buy. Certainly,

the purchasers of trucks and transmissions should make

transmission decisions for themselves and so long as appellees

manufactured their transmissions they had a chance to be their

supplier.

I recognize that the record could support a finding that

the FreedomLine was a technological innovation for which

Eaton did not offer a technically comparable product, and I

further recognize that Eaton engaged in vigorous competition

through aggressive but above-cost methods to compensate for

the possible deficiency of their transmission offerings in that

regard. But in the absence of anticompetitive conduct, the

antitrust laws do not forbid Eaton‟s response. See Ball Mem‟l

Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1339 (7th

Cir. 1986) (“Even the largest firms may engage in hard

competition, knowing that this will enlarge their market

shares.”) (citations omitted). In reality, however, the record

compels that the conclusion that Eaton was able to maintain its

dominant market position in the face of the availability of the

FreedomLine for myriad reasons, including its capability of

offering the OEMs a full product line, favorable pricing, its

long-standing, positive reputation, and various market forces

that favored an established market player such as Eaton. And it

is also evident from the record, especially from ZFM‟s internal

documents, that there were numerous intervening factors, such

107

as ZFM‟s precipitously falling market share, which tellingly

predated the adoption of the LTAs, the market‟s drive towards

full-product line manufacturers, the OEMs‟ hesitancy to

purchase new products, and the severe market downturn, that

disfavored ZFM.47

In the difficult market it faced, Meritor

entered into a joint venture that needed to achieve an almost

one-third market share within approximately four years of the

venture‟s formation to maintain a viable business, an obviously

ambitious goal indeed even when one overlooks the fact that the

joint venture offered a limited product line and a flagship

transmission that cost far more than other transmissions in the

market.

I note finally that courts‟ erroneous judgments in cases

such as this one do not come without a cost to the economy as a

47

I recognize that as the majority points out, certain OEM

representatives speculated that the LTAs damaged significantly

ZFM‟s business and may have caused its ultimate demise. As I

have stated above, it is beyond peradventure to say that “[t]he

antitrust laws . . . were enacted for „the protection of

competition not competitors.‟” Brunswick, 429 U.S. at 488, 97

S.Ct. at 697 (internal quotation marks and citation omitted); see

also Virgin Atl. Airways, 257 F.3d at 259 (“[W]hat the antitrust

laws are designed to protect is competitive conduct, not

individual competitors.”). Even if the LTAs negatively affected

ZFM‟s business, that circumstance is not the salient inquiry in

an antitrust case. The pivotal question is whether the LTAs

negatively affected competition — not a particular competitor —

in the marketplace, and for the reasons I have recited above,

they could not be found to have done that.

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whole. Discounts of all varieties, whether tied to the purchase

of multiple products, exclusivity, volume, or market-share, are

ubiquitous in our society. “Discounts are the age-old way that

merchants induce customers to purchase from them and not

from someone else or to purchase more than they otherwise

would.” Hovenkamp, Discounts and Exclusion, 2006 Utah L.

Rev. at 843. Indeed, market-share discounts can be particularly

pro-competitive because they can result in lower prices for a

broader range of customers as they extend to smaller purchasers

discounts typically reserved for the largest of purchasers under

more common volume-discount programs. See IIIA Areeda &

Hovenkamp, Antitrust Law ¶786b2, at 148. “[L]ower prices

help consumers. The competitive marketplace that the antitrust

laws encourage and protect is characterized by firms willing and

able to cut prices in order to take customers from their rivals.”

Barry Wright Corp., 724 F.2d at 231. Accordingly, “mistaken

inferences in cases such as this one are especially costly,

because they chill the very conduct the antitrust laws are

designed to protect.” Matsushita Elec. Indus. Co., 475 U.S. at

594, 106 S.Ct. at 1360.

Thus, as the Supreme Court has stressed, courts do not

issue these decisions in a vacuum: once we file our opinion in

this case firms that engage in price competition but seek to stay

within the confines of the antitrust laws must attempt to use the

precedent that we establish as a guide for their conduct, at least

if they are subject to the law of this Circuit. This is serious

business indeed.48

For this reason, the Supreme Court has

48

Of course, every decision we make is serious business and I do

not imply otherwise. However, particularly in light of the

109

“repeatedly emphasized the importance of clear rules in antitrust

law.” Linkline, 555 U.S. at 452, 129 S.Ct. at 1120-21; see also

Town of Concord v. Bos. Edison Co., 915 F.2d 17, 22 (1st Cir.

1990) (Breyer, C.J.) (Antitrust rules “must be administratively

workable and therefore cannot always take account of every

complex economic circumstance or qualification.”). I confess I

can glean no such clear rule from the majority‟s opinion. I do

not know how corporate counsel presented with a firm‟s

business plan at least if it is a dominant supplier that seeks to

expand sales through a discount program that might be

challenged by competitors as providing for a de facto exclusive

dealing program and asked if the plan is lawful under the

Sherman and Clayton Acts will be able to advise the

management. The sad truth is that the counsel only will be able

to tell management that it will have to take a chance in the

courtroom casino at some then uncertain future date to find out.

If Eaton‟s above-cost market-share rebate program

memorialized in the LTAs, which were neither explicitly nor de

facto exclusive or mandatory, can be condemned as unlawful de

facto partial exclusive dealing on the basis of literally a handful

of disjointed statements that amount at most to unsupported

speculation as to the possibility that Eaton may have stopped

supplying its transmissions if the OEMs did not meet the targets,

firms face a difficult task indeed in structuring lawful discount

programs. “Perhaps most troubling, firms that seek to avoid . . .

liability [for market-share rebate programs] will have no safe

harbor for their pricing practices.” Linkline, 555 U.S. at 452,

current economic climax, the reasoning of a precedential

opinion with such obvious economic repercussions is crucial.

110

129 S.Ct. at 1121 (citing Town of Concord, 915 F.2d at 22)

(Antitrust rules “must be clear enough for lawyers to explain

them to clients.”). What I find most troubling is that firms will

play it safe by not formulating discount programs and that the

result of this case will be an increase of prices to purchasers and

the stifling of competition, surely a perverse outcome. It is

ironical that the very circumstance that the majority‟s opinion is

so thoughtful and well crafted that the risk that it poses is so

great. On the other hand, the approach I believe the Supreme

Court‟s precedent compels — applying and giving persuasive

effect to the Brooke Group price-cost test and granting a

presumption of lawfulness to pricing practices that result in

above-cost prices — provides clear direction to firms engaging

in price competition but still allows for an antitrust plaintiff to

allege that a defendant has engaged in attendant anticompetitive

conduct that renders its practices unlawful.

In sum, I conclude that Eaton was entitled to judgment as

a matter of law on liability in all respects. Accordingly, I would

reverse the judgment of the District Court and remand this case

for entry of a judgment in favor of Eaton. My view of this facet

of the case renders it unnecessary for me to consider the

numerous other issues raised on this appeal, including the

District Court‟s decision that appellees suffered antitrust injury,

and its decisions regarding damages and injunctive relief. Thus,

I do not opine on the proper disposition of those matters.